General Bank Management(CAIIB)

International Banking (Module A) ndash PART-IForeign Exchange

R N Hirve Chief Manager

International Division Mumbai

29th November 2008

Contents of Module A RBI and exchange control in India ICC FEDAI ECGC EXIM Bank Exchange rates Risk management and basics of

derivatives Documentary letters of credit Facilities for exporters and importers Correspondent Banking

EXCHANGE CONTROL IN INDIA FEMA 1999- WEF 1ST JUNE 2000 ORIGIN IN DEFENSE OF INDIA RULES (DIR) 1935 CONTROL TO CONSERVE FEX DUE TO SEVERE

CONSTRAINTS ON FOREX RESERVES DUE TO II ND WORLD WAR

23 MAR 1947 THESE RULES BECAME FERA 1947 MODIFIEDAMENDED-FERA 1973 WEF 111974 FURTHER RALAXATIONS SINCE 1994 FCRA 1976- [permission from MinOf Home Affairs to

receive FC ndash HCDC Judge Newspaper Editor Publisher Columnist Printer Political party leader Office Bearer Candidate for election Charitable Trust]

FEMA VS FERA FEMA (49 Sections) Plays a role of

facilitator which regulates amp manages of FE transactions

Civil Act- prosecution to prove guilt

NRI status Penalty Regulation Discretion

amp Permission

FERA (81 sections) Acted as controller for

Conservation of FE

Criminal Act- accused to prove innocence

NRI status not compatible with IT Act

Penalty amp prosecution Only regulation

FOREX TRANSACTIONS 4 D ndash TRADE CONTROL EXCHANGE CONTROL

BANKrsquoS INTERNAL GUIDELINES KYC IMPORTANT SOURCE OF OTHER INCOME FOR BANKS

ndash INTERESTCOMMISSIONEXCHANGE IMPORTS EXPORTS INWARDOUTWARD REMITTANCES FC ACS EEFCRFCESCROWFCNR-B FCLS FOREX DEALINGTRADING OPERATIONS ReceiptPaymentBorrowingLending in FX

FEMA 1999 How to receive FX Exports + IRS + Borrowings +

Inbound Investments How to remit FX Imports + ORS + Lending +

Outbound Investments

Capital Account Residents

Creation of AssetsLiab Outside INDIA

Non Residents

Creation of AssetsLiab In INDIA

Capital AC ( Contd) Inflow -- Equity Debt ampAssistance

ECBADRGDRFDIFIINR INVEXTassistance to INDIA

Out flow

Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA

Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)

Inflow Export of goods amp services ndash travel

insurance investment transport income compensation to employees etc

Outflow Import of goods amp services travel

insurance investment transport income compensation to employees etc

CURRENT AC TRANSACTIONS

SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of

lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural

tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc

SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of

exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc

BOT amp BOP BOT

Current ac inflows ndash outflows

BOP

Current ac + Capital ac

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Contents of Module A RBI and exchange control in India ICC FEDAI ECGC EXIM Bank Exchange rates Risk management and basics of

derivatives Documentary letters of credit Facilities for exporters and importers Correspondent Banking

EXCHANGE CONTROL IN INDIA FEMA 1999- WEF 1ST JUNE 2000 ORIGIN IN DEFENSE OF INDIA RULES (DIR) 1935 CONTROL TO CONSERVE FEX DUE TO SEVERE

CONSTRAINTS ON FOREX RESERVES DUE TO II ND WORLD WAR

23 MAR 1947 THESE RULES BECAME FERA 1947 MODIFIEDAMENDED-FERA 1973 WEF 111974 FURTHER RALAXATIONS SINCE 1994 FCRA 1976- [permission from MinOf Home Affairs to

receive FC ndash HCDC Judge Newspaper Editor Publisher Columnist Printer Political party leader Office Bearer Candidate for election Charitable Trust]

FEMA VS FERA FEMA (49 Sections) Plays a role of

facilitator which regulates amp manages of FE transactions

Civil Act- prosecution to prove guilt

NRI status Penalty Regulation Discretion

amp Permission

FERA (81 sections) Acted as controller for

Conservation of FE

Criminal Act- accused to prove innocence

NRI status not compatible with IT Act

Penalty amp prosecution Only regulation

FOREX TRANSACTIONS 4 D ndash TRADE CONTROL EXCHANGE CONTROL

BANKrsquoS INTERNAL GUIDELINES KYC IMPORTANT SOURCE OF OTHER INCOME FOR BANKS

ndash INTERESTCOMMISSIONEXCHANGE IMPORTS EXPORTS INWARDOUTWARD REMITTANCES FC ACS EEFCRFCESCROWFCNR-B FCLS FOREX DEALINGTRADING OPERATIONS ReceiptPaymentBorrowingLending in FX

FEMA 1999 How to receive FX Exports + IRS + Borrowings +

Inbound Investments How to remit FX Imports + ORS + Lending +

Outbound Investments

Capital Account Residents

Creation of AssetsLiab Outside INDIA

Non Residents

Creation of AssetsLiab In INDIA

Capital AC ( Contd) Inflow -- Equity Debt ampAssistance

ECBADRGDRFDIFIINR INVEXTassistance to INDIA

Out flow

Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA

Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)

Inflow Export of goods amp services ndash travel

insurance investment transport income compensation to employees etc

Outflow Import of goods amp services travel

insurance investment transport income compensation to employees etc

CURRENT AC TRANSACTIONS

SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of

lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural

tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc

SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of

exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc

BOT amp BOP BOT

Current ac inflows ndash outflows

BOP

Current ac + Capital ac

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

EXCHANGE CONTROL IN INDIA FEMA 1999- WEF 1ST JUNE 2000 ORIGIN IN DEFENSE OF INDIA RULES (DIR) 1935 CONTROL TO CONSERVE FEX DUE TO SEVERE

CONSTRAINTS ON FOREX RESERVES DUE TO II ND WORLD WAR

23 MAR 1947 THESE RULES BECAME FERA 1947 MODIFIEDAMENDED-FERA 1973 WEF 111974 FURTHER RALAXATIONS SINCE 1994 FCRA 1976- [permission from MinOf Home Affairs to

receive FC ndash HCDC Judge Newspaper Editor Publisher Columnist Printer Political party leader Office Bearer Candidate for election Charitable Trust]

FEMA VS FERA FEMA (49 Sections) Plays a role of

facilitator which regulates amp manages of FE transactions

Civil Act- prosecution to prove guilt

NRI status Penalty Regulation Discretion

amp Permission

FERA (81 sections) Acted as controller for

Conservation of FE

Criminal Act- accused to prove innocence

NRI status not compatible with IT Act

Penalty amp prosecution Only regulation

FOREX TRANSACTIONS 4 D ndash TRADE CONTROL EXCHANGE CONTROL

BANKrsquoS INTERNAL GUIDELINES KYC IMPORTANT SOURCE OF OTHER INCOME FOR BANKS

ndash INTERESTCOMMISSIONEXCHANGE IMPORTS EXPORTS INWARDOUTWARD REMITTANCES FC ACS EEFCRFCESCROWFCNR-B FCLS FOREX DEALINGTRADING OPERATIONS ReceiptPaymentBorrowingLending in FX

FEMA 1999 How to receive FX Exports + IRS + Borrowings +

Inbound Investments How to remit FX Imports + ORS + Lending +

Outbound Investments

Capital Account Residents

Creation of AssetsLiab Outside INDIA

Non Residents

Creation of AssetsLiab In INDIA

Capital AC ( Contd) Inflow -- Equity Debt ampAssistance

ECBADRGDRFDIFIINR INVEXTassistance to INDIA

Out flow

Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA

Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)

Inflow Export of goods amp services ndash travel

insurance investment transport income compensation to employees etc

Outflow Import of goods amp services travel

insurance investment transport income compensation to employees etc

CURRENT AC TRANSACTIONS

SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of

lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural

tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc

SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of

exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc

BOT amp BOP BOT

Current ac inflows ndash outflows

BOP

Current ac + Capital ac

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

FEMA VS FERA FEMA (49 Sections) Plays a role of

facilitator which regulates amp manages of FE transactions

Civil Act- prosecution to prove guilt

NRI status Penalty Regulation Discretion

amp Permission

FERA (81 sections) Acted as controller for

Conservation of FE

Criminal Act- accused to prove innocence

NRI status not compatible with IT Act

Penalty amp prosecution Only regulation

FOREX TRANSACTIONS 4 D ndash TRADE CONTROL EXCHANGE CONTROL

BANKrsquoS INTERNAL GUIDELINES KYC IMPORTANT SOURCE OF OTHER INCOME FOR BANKS

ndash INTERESTCOMMISSIONEXCHANGE IMPORTS EXPORTS INWARDOUTWARD REMITTANCES FC ACS EEFCRFCESCROWFCNR-B FCLS FOREX DEALINGTRADING OPERATIONS ReceiptPaymentBorrowingLending in FX

FEMA 1999 How to receive FX Exports + IRS + Borrowings +

Inbound Investments How to remit FX Imports + ORS + Lending +

Outbound Investments

Capital Account Residents

Creation of AssetsLiab Outside INDIA

Non Residents

Creation of AssetsLiab In INDIA

Capital AC ( Contd) Inflow -- Equity Debt ampAssistance

ECBADRGDRFDIFIINR INVEXTassistance to INDIA

Out flow

Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA

Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)

Inflow Export of goods amp services ndash travel

insurance investment transport income compensation to employees etc

Outflow Import of goods amp services travel

insurance investment transport income compensation to employees etc

CURRENT AC TRANSACTIONS

SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of

lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural

tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc

SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of

exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc

BOT amp BOP BOT

Current ac inflows ndash outflows

BOP

Current ac + Capital ac

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

FOREX TRANSACTIONS 4 D ndash TRADE CONTROL EXCHANGE CONTROL

BANKrsquoS INTERNAL GUIDELINES KYC IMPORTANT SOURCE OF OTHER INCOME FOR BANKS

ndash INTERESTCOMMISSIONEXCHANGE IMPORTS EXPORTS INWARDOUTWARD REMITTANCES FC ACS EEFCRFCESCROWFCNR-B FCLS FOREX DEALINGTRADING OPERATIONS ReceiptPaymentBorrowingLending in FX

FEMA 1999 How to receive FX Exports + IRS + Borrowings +

Inbound Investments How to remit FX Imports + ORS + Lending +

Outbound Investments

Capital Account Residents

Creation of AssetsLiab Outside INDIA

Non Residents

Creation of AssetsLiab In INDIA

Capital AC ( Contd) Inflow -- Equity Debt ampAssistance

ECBADRGDRFDIFIINR INVEXTassistance to INDIA

Out flow

Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA

Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)

Inflow Export of goods amp services ndash travel

insurance investment transport income compensation to employees etc

Outflow Import of goods amp services travel

insurance investment transport income compensation to employees etc

CURRENT AC TRANSACTIONS

SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of

lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural

tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc

SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of

exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc

BOT amp BOP BOT

Current ac inflows ndash outflows

BOP

Current ac + Capital ac

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

FEMA 1999 How to receive FX Exports + IRS + Borrowings +

Inbound Investments How to remit FX Imports + ORS + Lending +

Outbound Investments

Capital Account Residents

Creation of AssetsLiab Outside INDIA

Non Residents

Creation of AssetsLiab In INDIA

Capital AC ( Contd) Inflow -- Equity Debt ampAssistance

ECBADRGDRFDIFIINR INVEXTassistance to INDIA

Out flow

Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA

Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)

Inflow Export of goods amp services ndash travel

insurance investment transport income compensation to employees etc

Outflow Import of goods amp services travel

insurance investment transport income compensation to employees etc

CURRENT AC TRANSACTIONS

SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of

lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural

tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc

SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of

exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc

BOT amp BOP BOT

Current ac inflows ndash outflows

BOP

Current ac + Capital ac

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Capital Account Residents

Creation of AssetsLiab Outside INDIA

Non Residents

Creation of AssetsLiab In INDIA

Capital AC ( Contd) Inflow -- Equity Debt ampAssistance

ECBADRGDRFDIFIINR INVEXTassistance to INDIA

Out flow

Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA

Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)

Inflow Export of goods amp services ndash travel

insurance investment transport income compensation to employees etc

Outflow Import of goods amp services travel

insurance investment transport income compensation to employees etc

CURRENT AC TRANSACTIONS

SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of

lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural

tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc

SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of

exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc

BOT amp BOP BOT

Current ac inflows ndash outflows

BOP

Current ac + Capital ac

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Capital AC ( Contd) Inflow -- Equity Debt ampAssistance

ECBADRGDRFDIFIINR INVEXTassistance to INDIA

Out flow

Repayment of loansRepatriation of capitalForeign investments by ResidentsEXT Assistance by INDIA

Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)

Inflow Export of goods amp services ndash travel

insurance investment transport income compensation to employees etc

Outflow Import of goods amp services travel

insurance investment transport income compensation to employees etc

CURRENT AC TRANSACTIONS

SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of

lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural

tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc

SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of

exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc

BOT amp BOP BOT

Current ac inflows ndash outflows

BOP

Current ac + Capital ac

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Current AC ( Full convertible since 19081994- Trade ac flows Misc payments annual accruals- intt dividend amp profit)

Inflow Export of goods amp services ndash travel

insurance investment transport income compensation to employees etc

Outflow Import of goods amp services travel

insurance investment transport income compensation to employees etc

CURRENT AC TRANSACTIONS

SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of

lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural

tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc

SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of

exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc

BOT amp BOP BOT

Current ac inflows ndash outflows

BOP

Current ac + Capital ac

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

CURRENT AC TRANSACTIONS

SCHDULE I- Prohibited Eg Remittance of lottery winnings Racing purchase of

lottery tickets etc SCHDULE II- Permitted by MinistryDeptt Eg Cultural

tours-HRD-Dept of Education amp Culture Remittance of freight of vessel chartered by a PSU- Min of Surface Transport etc

SCHDULE III - Permitted by RBI Eg Gift Donation exceeding USD 5000 release of

exchange in excess of USD 10000 or eq in one financial year( April-March) [io one calendar year] for one or more visits to any country except Nepal amp Bhutan etc

BOT amp BOP BOT

Current ac inflows ndash outflows

BOP

Current ac + Capital ac

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

BOT amp BOP BOT

Current ac inflows ndash outflows

BOP

Current ac + Capital ac

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

BALANCE OF TRADE

$ in BN (YrMarch)

08 07 06 05 04 03

EXPORTS 15551

12641

10061

7924 6184 5274

IMPORTS 23591

18574

14023

10706

7521 6019

Trade deficit -8040 -5933 -3962 -2782 -1337 - 745

TD as of EXP 517 47 39 35 22 14

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Growing Foreign Exchange Reserves

22 26 30

15162

19917

30972 313

251

14130

112967543

17

4226385415

5025

43444462

399

4264437

456488

4664

436425

372355

335

475

0

20

40

60

80

100

120

140

160

180

200

220

240

260

280

300

320

1995-96 1996-97 1997-98 1998-99 1999-00 2000-012001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 16-May-08

20-Nov-08

0

7

14

21

28

35

42

49

56

Fore

ign

Exch

an

ge R

eserv

es (

US

$ b

illion

)

Exc

han

ge R

ate

(Rs

US

$)

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

RBI - IECDFEDDBOD FEMA 99 Inflow amp Outflow of FC Maintenance of FC reserves Issue of license to AD Inspection amp Supervision Monitoring ndash R returns XOSBEF etc Master Circulars AP (DIR) Circulars Intt Rates on Export Credit

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Guidelines amp Rules for FX Business (FEDAI Rule book) Training of Bk personnel in areas of FX Business Accreditation of Forex Brokers Code of Ethics amp Conduct for Forex Dealers amp Brokers Advisingassisting member banks in settling issuesmatters in their

dealings Code on Bankrsquos Commitment to Customers (CBCC)- Intt for delay in

payment of Inward remittance beyond 10 days 2 over Savings rate ( USD 5000USD 5000 and above)

Represent member banks on GovtRBIother bodies Accounting standardsClosing Rates Revaluation of Mirror acs amp

outstanding cont

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Ministry of Commerce Inflow and outflow of goods amp Services (DGFT- FT Policy)

Ministry of Finance Inflow and outflow of FC(CustomsExciseEDRBIExim BankECGCBanks0FIs)

Ministry of IT Accreditation of software units Promotion of software exportsSTPHTP

CONCERNED MINISTRIES

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Export Credit Guarantee Corporation of India Ltd (ECGC)

It was set up for the promotion of exports in the year 1957

To protect the exporters from any financial loss Primary goal of ECGC

To support amp strengthen the export promotion drive in India by providing a range of credit risk insurance covers to exporters against loss in export of goods and service also by offering guarantee covers to banks and financial institutions to enable exporters to obtain better facilities from them

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

ECGC Credit Guarantee cover WTPCG- in fo banks WTPSG- in fo banks POLICIES- in fo exporters Status Report on overseas buyers

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Other market players Insurance companies Transporters Chamber of commerce ExportersImporters

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Interest Rates

PCFCLIBOR + 100 BP PCBPLR- 25 Upto 270 days ECB 3 to 5 yrs LIBOR + 300 bps more than 5 yrs+500bps FCNR interest ceiling LIBORSWAP rates prevailing on the last

working day of the previous month plus 100 basis points wef 15th Nov 2008

FCNR now in 6 currencies- USDGBPEURJPYAUDCAD Max 5 years ( Ref DBOD cir 26072005) NRE interest rate ceiling LIBORSWAP RATES FOR USD of corresponding

maturities prevailing on the last working day of the previous month plus 175 bps wef 15th Nov 2008 ndash FEDAI would quotedisplay these rates fm FEB 2006 ndashRef DBOD circular dtd 8 Feb 2006

NRE SAVINGS At the rate applicable to domestic deposit rates wef 17 Nov 2005

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Correspondent Banking Relationship to be established by approval

of the Board or delegated by Board headed by ChairmanCEO

To be placed before the Board in next Board meeting for post facto approval

To understand details about Bankrsquos management Major Business Activity level of AML compliance purpose of opening account regulatorysupervisory frame work in the country of correspondent bank etc

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

USA PATRIOT ACT amp Correspondent Banking Guidelines

United and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism

Prohibition on Correspondent Accounts for Foreign Shell Accounts for Foreign Shell Banks - Section 313

Requirementsndash Terminate relationship no later than ten days

after receipt of notice that the foreign bank has

1048698 Failed to comply with a summons or subpoena1048698 Initiate proceedings in a US court to contest the

summons or subpoena

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

USA PATRIOT ACT amp Correspondent Banking Guidelines

120 hour rulendash Not later than 120 hours after receiving a

request1048698 Related to anti-money laundering

compliance at a covered institution or1048698 Regarding a customer at a covered

institution - Covered institution shall provide information and documentation for

account opened maintained administered or managed in the US

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

PECULARITIES OF FOREX MARKETS An Over The Counter Market Only market open 24 hour a day SYDTOKTAIPEI-SrsquoPORE-HKINDIAEURLONNY 130PM1230PM1130AM900AM530AM430AM

1130PM-PREVIOUSDAY No single location ndash no barriers Exchange rates fluctuate almost every four

second Other markets- money capital amp debt ndash also

affect forex market Controlspolicies of respective governments

also affect forex markets Settlement of forex transactions normally do

not take place simultaneously

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Factors Influencing Currency ValueEconomic Factors 1 Balance of Payment 2 Interest Rates 3 Inflation 4 Monetary and Fiscal Policy 5 International Competitiveness 6 Monetary Reserves 7 Government Controls and Incentives 8 Importance of Currency in WorldPolitical Factors 9 Political Party and Leader Philosophies10 Proximity of Elections or Change in

LeadershipExpectation Factors11 Expectations12 Forward Exchange Market Prices

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

FX Rates What is Exchange Rate Exchange Rate is a rate at which one

currency can be exchanged into another currency

Foreign Exchange Deal Involves the sale of one currency and

the purchase of another at an agreed exchange rate

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

How Banks quote spot rates to customers

Ascertain the ongoing market rate Load a margin Quote Cover One of the party to the transaction

must be a bank ie AD

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

SPREAD

THE DIFFERENCE BETWEEN THE BUYING AND SELLING RATE (BID AND OFFER RATES) IS KNOWN AS

SPREAD

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Calculating Cross Rates India is a market maker for Indian Rupee Dollar Rupee trading ( the first quotes) start in the Mumbai

Market BUT WHAT ABOUT OTHER CURRENCIES WHERE DO RATES FOR CHF GBP EUR ETC COME FROM

HOW ARE THEY CALCULATED

A CHFRUPEE RATE IS A CROSS OF DOLLARRUPEE amp DOLLAR CHF

DOLLAR RUPEE = 453536

DOLLAR CHF = 13440 45 CHF RUPEE = 3373 75 In other words 4536 13440 = 3375 AND 4535 13445 = 3373

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Calculating Cross Rates hellip 2

FOR GBP ( EUR AUD ) RUPEE RATE CROSS RATE IS ARRIVED AT BY

MULTIPLICATION

DOLLAR RUPEE = 4535 4536 x x GBP USD = 17960 17965

GBP RUPEE = 8145 8149

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Forward Rates What is a Forward Rate Rate agreed for settlement on an agreed

date in the future All rates are derived from Spot rates Forward rate is the spot rate adjusted for

the premium discount

Forward Rate = Spot Rate + - premium or discount

Forward calculation ( examples ) Is the forward rate the marketrsquos

expectation of future spot rates

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

FOREX FORWARDS

CONTRACT BETWEEN TWO PARTIES TO EXCHANGE CURRENCIES AT AN AGREED RATE ON AN AGREED DATE

FOR EXAMPLE Bank A agrees to buy from RIL USD 1 mio at 4373 INR per $ ON 29th SEP 2005

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Determining Forward Rates Forward rates are determined by addingsubtracting the premiumdiscount from the spot rates

Eg The Dollar is at a PREMIUM to the Rupee Hence the Dollar is more expensive to buy at a

future date If the Spot USD = 4370 ADD 3 months fwd Premium = 0006 USDINR 3 MTH FWD = 4376

The USD is at a DISOCUNT to the JPY Hence the Dollar is cheaper to buy at a forward

date If the Spot USDJPY = 10880 DEDUCT 3 months fwd discount = 040 USDJPY 3 month forward = 10840

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

FOREX FORWARDS

As per FEMA 1999 one of the parties has to be an AD

The contract could then be between an AD amp its customer

OR between two ADs

The former is the RETAIL segment while the later is the WHOLESALE segment

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

VALUE DATE

IN FOREIGN EXCHANGE MARKET IT TAKES SOME TIME TO PROCESS THE TRANSACTION AND SEND INSTRUCTION TO THE CORRESPONDENT BANKBRANCH ABROAD

THEREFORE IT IS CUSTOMARY TO QUOTE A RATE TO DO THE DEAL EVEN THOUGH EXCHANGE OF THE CURRENCIES DOES NOT TAKE PLACE ON THE SAME DAY

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

VALUE DATE IS THE DATE ON WHICH THE EXCHANGE OF CURRENCIES ACTUALLY TAKES PLACE THIS IS IRRESPECTIVE OF THE DATE OF DEAL

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Basic Terms used Nostro ac Vostro ac Mirror ac- reflection of Nostro ac ndash maintained in FC

and eq rupees of the same- reconciliation of nostro ac Card Rates Notional Rate Indicative Rate Opening ClosingHighLow Rates Interbank Rate Screen Rate Revaluation Rate Closing Rate ( FEDAI ) LIBOR Pipeline Transactions Overdue contracts NostroVostro Reconcilaition

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Basic Terms Used Exchange Position The difference between the amount of a

currency bought and the amount of the same currency sold is known as ldquopositionrdquo in that currency

Overbought Position If the amount of FC bought by a bank is more than the amount sold the difference between the two is ldquoOverboughtLongPlusrdquo position

Oversold Position If the amount of FC sold by a bank is more than the amount bought the difference between the two is ldquoOversoldShortMinusrdquo position

Square Position If the amount of FC bought by a bank equals the amount sold then the bank is said to have ldquosquarerdquo position If there is a small difference it is known as ldquoNear Square positionrdquo

Open Position Exchange position at given point of time

ON Position Open Exchange position at the end of the day

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

ORGANISATION OF DEALING ROOM FX dealing ndash a highly specialised function Need to have well trained personnel for

front office to deal with branches customers amp other banks

Back office responsible for the follow-up of the deals made by the dealers

Effective control over the dealing operations is of great importance as possibilities exists for manipulation of exchange rates dealing positions mismatches etc

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

RBIrsquoS ICG ndash FX BUSINESSSEGREGATION OF DUTIES

Front Office- Dealing Room Mid- Office- Risk Management

Accounting Policies amp MIS Back Office- Settlement

Reconciliation Accounting

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Exchange traded currency futures

U S $ - INR currency futures contract Contract to be quoted in rupee terms Outstanding

position in dollar terms Minimum contract size $1000 Maximum maturity of 12 months Available contracts maturities from 1 to 12 months Settlement in cash in Indian rupee at Reserve Bank

reference rate Settlement date last working day (excluding

Saturdays) of the month Trading time 9 to 5 pm

Convenient lot size and standardized contracts

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Currency futures segment ndash in a recognized exchange

Eligible Net worth Rs100 crore for exchange At least 50 members for currency derivatives segment Operations structure and capability

A distinct company as independent clearing corporation Nationwide trading terminal Online screen based trading system with disaster recovery site Separate trading and order driven platform from other segments Separate governing council

Trading membership Net worth Rs 1 crore for trading member Rs 10 crore for clearing member Trading members and sales persons to be accredited by

certification FIIs and NRIs would not be permitted to trade

Three exchanges in the initial stage NSE MCXBSE

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

44

Advance Payment Open Account On Account

Sales ndash Consignment Basis Collection Method

- Documentary Collection Demand Bills Usance Bills

- Clean collection Documentary Credit Letters of Credit

INTERNATIONAL TRADE SETTLEMENT AND PAYMENT SYSTEM

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Factoring Vs ForfaitingOn going arrangement Single transaction based On going arrangement Single transaction based

Open account sale LC or bank acceptance requiredOpen account sale LC or bank acceptance required

Provides other than financing Primarily a financing serviceProvides other than financing Primarily a financing service servicesservices

Used for offering short term credit For medium long term transaction Used for offering short term credit For medium long term transaction to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years)to regular buyers (up to 180 days) which could be ldquoone-offrdquo (90 days to 7years) Both with and without recourse Is without recourseBoth with and without recourse Is without recourse

For domestic and export receivables Usually for export receivablesFor domestic and export receivables Usually for export receivables

No minimum size Transaction should be minimum USD No minimum size Transaction should be minimum USD 100000 100000

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

46

An arrangement at the request and on instructions of a customer

To make payment authorise other bank to pay or negotiate

Against stipulated documents Provided terms and conditions are

complied with

DOCUMENTARY CREDITS

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

47

ART 4 TRIANGULAR CONTRACTUAL ARRANGEMENT

EXPORTER

SALECONTRACTDEFINING

TERMS

IMPORTER

ISSUINGBANKADVISING

BANK

LCAPPLICATION

ISSUANCE OF THE LETTER OF

CREDIT

ADVICE OFOPENING

LETTER OFCREDIT

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

48

Applicant (Opener Importer) Issuing Bank Beneficiary (Exporter) Advising Bank Confirming Bank Negotiating Bank Reimbursing Bank

PARTIES TO DOCUMENTARY CREDIT

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

49

Revocable Irrevocable Confirmed Restricted Unrestricted Transferable Back-to-back Revolving Deferred Red Clause Green Clause Standby

TYPES OF CREDIT

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

50

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

International Standard Banking Practice (ISBP) ndash for the examination of documents under Documentary Credits ndash Publication No681

International Standby Practices (ISP 98) ndash Publication No590

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

51

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Customs and Practice for Documentary Credits ndash UCP 600

andSupplement to UCP 600 for electronic presentation (eUCP 11 version)

Uniform Rules for Bank-to-Bank Reimbursement (URR 525725)

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

52

INTERNATIONAL TRADE ndashICCrsquoS PUBLICATIONS

Uniform Rules for Collection (URC 522)

INCOTERMS 2000 Uniform Rules for Demand

Guarantees (URDG) ndash Publication No458

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

53

THE STRUCTURE OF INCOTERMS 2000 4 Groups of termsGroup E Departure

EXW EX Works (hellipnamed place)

Group F Main Carriage UnpaidFCA Free Carrier (hellipnamed place)FAS Free Alongside Ship (hellipnamed place)FOB Free On Board (hellipnamed port of shipment)

Group C Main Carriage PaidCFR Cost and Freight (hellipnamed port of destination)CIF Cost Insurance and Freight (hellipnamed port of destination)CPT Carriage Paid To (hellipnamed place of destination)CIP Carriage Insurance Paid To (hellipnamed place of

destination)

Group D DAF Delivered at Frontier (hellipnamed place)DES Delivered Ex Ship (hellipnamed port of destination)DEQ Delivered Ex Quay (hellipnamed port of destination)DDU Delivered Duty Unpaid (hellipnamed place of destination)DDP (Delivered Duty Paid (hellipnamed place of destination)

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

54

Universally recognised set of guidelines governing Letters of Credit Brochure framed by ICC HQ at Paris ICC ndash World Business Organisation of non-govt nature working

towards Trade Liberalisation Free amp Fair competition 1933 ndash revised in 1951 1962 1974 19831993 Latest Publication No600 2007 revision adopted wef 01072007 LC being one of the safe methods of settlements is commonly

used in trade hence UCPDC has become indispensable Constructive delivery of goods since matching physical delivery with payment is not possible

By handing over documents or transferring title or to control over the goods is possible under LC mechanism

UCPDC balances the interests of all parties to LC and gives maximum possible guidance and assistance

UCPDC ndash UNIFORM CUSTOMS AND PRACTICE

FOR DOCUMENTARY CREDITS

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

The UCP 600 Revision

Some Highlights Fewer articles UCP600 contains 39 articles The

UCP 500 has 49

A replacement of the term reasonable time with a definite number of days (5) for examining and determining compliance of documents

A new provision concerning addresses of the beneficiary and the applicant

An expanded discussion of original documents and

Re-drafted transport articles aimed at resolving confusion over the identification of carriers and agents

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

The UCP 600 Revision

Some Highlights (continued)

A new section of definitions containing terms such as honour and negotiationldquo

Honor means i) to pay at sight if the credit is available by sight payment ii) to incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment (iii) to accept a bill of exchange (ldquodraftrdquo) drawn by the beneficiary and pay at maturity if the credit is available by acceptance

Negotiation means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) andor documents under a complying presentation by advancing or agreeing to advance funds to the beneficiary on or before the banking day on which reimbursement is due to the nominated bank

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

Summary of Changes The phrase reasonable time for acceptance or

refusal of documents has been replaced by a firm period of five banking days

The number of articles reduced to 39 New provisions allow for the discounting of

deferred payment credits Banks can now accept an insurance document

that contains reference to any exclusion clause New sections on definitions and

interpretations have been added to clarify the meaning of ambiguous terms

Credit must state if reimbursement is subject to the ICC rules for bank to bank reimbursements

THANK YOU

THANK YOU