internship report on BASIC Bank limited

7/27/2019 internship report on BASIC Bank limited

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Foreign Exchange Operation

Of

BASIC Bank Limited

Gulshan Branch


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Internship Report

on

Foreign Exchange Operation of BASIC Bank L imi ted

Submitted to:

The Department of Business Administration, Daffodil International University, In

partial fulfillment of the requirement for the award of BBA Degree, Major inFinance.

Prepared by:

Md. Ferdous Hosain

ID: 09182-11-1144

Batch: 20th

Major: Finance

Department of Business& EconomicDaffodil International University

Under the Supervision of

Rafiqul Islam

Professor & Dean

Department of Business& Economic

Daffodil International University

Date of submission 2nd

May 2013


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Letter of Transmittal

2nd

may 2013

Rafiqul IslamProfessor and DeanDepartment of Business Administration


Subject: Submission of Internship Report on Foreign Exchange operation of

BASIC Bank Ltd.

Dear Sir,

It is a pleasure to present the internship report on Foreign Exchange operation of

BASIC Bank Ltd. which was assigned to me as a partial requirement for the

completion of the BBA Program. I am very much grateful to Almighty Allha because he

gave me an opportunity to complete my internship program smoothly. I have tried to

combine the secondary data available with my own investigation in order to come up

with a complete report. In spite of several constraints, I gave my all efforts to make this

report a meaningful one.

I hope and sincerely believe that this report will serve the purpose of my Internship

Program. My effort will be rewarded only if it adds value to the research literature.

Thank you again for valuable direction and cooperation.

Sincerely yours,

.

Md.Ferdous Hossain

Program: BBA, Batch: 20th

ID No. 09182-11-1144

Department of Business Administration



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Declaration of the student

I do hereby solemnly declare that , that work presented in this Internship report has been

by done by me and has not been previously submitted to any other university or

organization for an academic qualifications/certification /diploma or degree.

The work I have presented does not breach any existing copyright law and no portion of

this report is copied from any work done earlier for a degree or otherwise.

I further undertake to indemnify the Department against any loss or damage arising frombreach of the forgoing obligation.

Md.Ferdous Hossain

ID No. 09182-11-1144Batch: 20th

Program: BBADepartment of Business Administration

Major: Finance


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Letter of Approval

I am pleased to certify that the internship report on Foreign Exchange Operation of

BASIC Bank Limited. A study on Gulshan Branch conducting by Md. Ferdous

Hossin is bring ID No:09181-11-1144 of the department of Business and Economic has

been approved for presentation and defense / viva voce. Under my supervision Md .

Ferdous Hossain worked with BASIC Bank Limited as an intern. He completed the work

during the spring 2013 semester.

I am pleased to hereby certify that the findings presented in the report are the authentic

work by Md.Ferdous Hossain. I strongly recommend the report presented by Md.Ferdous

Hossain for further academic commendation and defense / viva-voce.

Md.Ferdous Hossain bears a strong moral character and a very pleasing personality. It

has indeed a great pleasure working with him. I wish him all success in life.

Rafiqul Islam

Professor and Dean

Department of Business and Economies



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PREFACE

Organizational Internship is a program, which is a conducted to acquire practical knowledge.

It is believe that practical working experience will be added advance in our future life, which

may also help to achieve our aim and ambition. It is provide a chance to acquire knowledge

from global business and earmark for executive .It identifies the practical phenomena

including risk and opportunities and also enable to take probable alternative decisions. The

knowledge is best on learning and experience.

It is really a matter of great pleasure that, I have completed my internship program in BASIC

Bank Limited, Gulshan Branch. Thos program was conduct from 1st January , 2013 to 1st

April , 2013 under the faculty of Business and Business Administration, (Daffodil

International University).

The report has been prepared for the fulfillment of academic curriculum as required under the

program .While preparing this report , I gather practical experience of working field and I

also think that closer Internship program are further gathered . Finally I would like say that

tireless struggle would become successful when any person or organizational will get benefit

from this report.


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ACKNOWLEDGEMENTS

It is high time for me to express my deepest gratitude and humble submission to the almighty

Allha but for whose support I would not be able to complete a huge task of preparing this

Internship report within the scheduled time.

I would like to take the opportunity to express my gratitude to my Internship Advisor,

Rafiqul Islam, Professor & Dean, Department of Business administration, Daffodil

International University, whose direction, guidance and support helped me a lot in writing

this report.

My deepest appreciation and special thanks goes to the Business Administration of Daffodil

International University for providing me an opportunity to come closer to the real world and

help me in enriching my knowledge.

I would specially like to thank the authority of BASIC Bank Limited for recruiting me as

Internship student which brings me to come closer to the real world and help me in enriching

my knowledge.

I would like to thank, all staff of Gulshan Branch of BASIC Bank Limited for adopting me

with corporate culture and providing necessary information which is essential for preparing

my Internship report.


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Executive Summary

The internship is designed to bridge the gulf between the theoretical knowledge and real life

experienced as a part of Bachelor of Business Administration (BBA) program. It is designed

to have a practical experience while passing through the theoretical understanding.

The report is a combination of three months internship program with BASIC Bank Limited.

The report is about Foreign Exchange Operation of BASIC Bank Limited

This report contents seven chapters. In chapter 1 is introduction and background of the study

that included rational of the study, objective, methodology and limitation of the study. In

chapter 2 is organizational profile of BASIC Bank Limited that have background,

organizational goal, organizational structure, organogram of BASIC Bank Limited. In chapter

3 is a foreign trade activity of BASIC Bank Limited that is most important thing in a bank

sector contents export, import and remittance. In chapter 4 is evaluation of foreign exchange

operation of BASIC bank limited. In chapter 5 is theoretical deliberation of foreign exchange

risk management. In chapter 6 is other department of BASIC and last chapter is conclusion.


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Table of content

Chapter Content Page

Chapter 1

Introduction and

Background if the

study

1.1Rational of the study 2

1.2Objective of the study 2

1.3Methodology of the Study 3

1.4Limitation of the Study 4

Chapter 2

Organizational

profile of BASIC

2.1 Background 6-8

2.2 Organizational Goal 9

2.3 Organizational Structure 9

2.4 Customer Service 10

2.5 Bank Performance at a glance 11-15

2.6 Technology of BASIC 16

2.7 Risk management 16

Chapter 3

Gulshan Branch

3.1. Information and location 18

3.2. At a Glance of BASIC Bank Limited Gulshan

Branch

18

Chapter: 4

Foreign Trade

4.1 Literature Review 20

4.2 BASIC Bank and Trade Finance 201 - 22

4.3 IMPORT Bills 23 - 30

4.3 Export Bills 31 - 37

4.5 Collection 38 - 40


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Activities of

BASIC

4.6. Banks facilities and Services to Exporter and

Importer

4142

4.7. Remittance 42 - 44

3.8. Core Concept of Foreign Exchange 45 - 46

4.9. Factor Affecting Fluctuation In Exchange Rates 47

4.10. Ways of avoiding Exchange Risk 48

Chapter: 5

Other Department5.1 General Banking Department 50

5.2 Advance or Loan Department 51 - 53

Chapter: 6

Finding,

Recommendation

& Conclusion

6.1.Findings: 55

6.2.Recommendation 56

6.3 Conclusion 57

6.4 Reference 58


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Chapter: 1

Introduction and Background of the Study


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Chapter: 1

Introduction and Background of the Study

1.5 Rational of the study

Now a days, foreign trade plays a vital role in banking. It is a system or process in which

one national currency is converted into another and of transferring money from one

country to another. It is mainly consist of export, import and other foreign Remittance. In

a developing country, foreign direct investment (FDI), export, import, foreign remittanceetc. plays very significant role. There is a great opportunity to invest the foreign

remittance which also comes from wages earners working abroad, in severalprospective investing fields like energy sector, telecommunication, information

technology etc, in our economy.

Therefore, Foreign Exchange has an important role to play in the financial sector of

Bangladesh. Consequently, the study of Foreign Exchange the context of

Bangladeshs developing economy is of great opportunity.

1.6 Objective of the study

1.6.1General objectiveThe general objective is that; practically know about foreign exchange actives and it

how to apply our real life.

1.6.2Specif ic objective To present an over view of The BASIC Bank Ltd.

To analysis the Foreign Exchange Transaction procedures maintained by the BBL

To know overall activities of the Foreign Exchangedivision

To evaluate Foreign Exchange performance of The BASIC Bank Ltd.

To identify problems in Foreign Exchange operations of The BASIC Bank Ltd.

To recommend suggestions for the successful Foreign Exchange Operations of the

BASIC Ltd.


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Chapter 1: Introduction and Background of the Study

1.3 Methodology of the Study

The following methodology has been followed to come to a successful conclusion of

the report:-

1.3.1 Sources of I nformation and data:

The sources of information are:

Primary data

Officers.

Conversion with clients.

Questionnaire.

Secondary data

Different Circulars issued by the head office of Bangladesh Bank.

Banks Annual reports. (years.2009,2010,2011)

Prior research report.

Some printed materials like brushier, hand notes etc.

Data Collection through personal interviews.

1.3.2 Per iod covered

Department Total Days

General banking 7

Credit Division 7

Foreign Exchange 76

Total 90

Table 1.1 shows the period covered during the internship


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Chapter 1: Introduction and Background of the Study

1.3.3 The process of application of the techniques and reason

A critical analysis of the data has been made through the bar diagram and line

graph over the last five years. This has enabled me to visualize the trend of thevariables of interest over time; indicators of bank perforation have also been

computed through ratios of variables and spread-burden analysis. In additionROE, Profitability etc. have been critically analyzed.

Trade finance procedure of documentary credit of the BASIC Bank has been

critically evaluated through the analysis of diagram, flow charts. This willprovide the identification of the problems faced by BASIC and ways of

removing the problems.

Protection of foreign exchange risk occurring out of transaction exposure for

BASIC by flowchart.

1.4 Limitation of the Study

Deposit all out co-ordination from the bank official, I faced some limitations. The main

problem I faced in preparing the paper was that inadequacy and lack of availability of

required data. This report is an overall view of Foreign Exchange of BASIC Bank Ltd. But

the is some limitation for preparing this report. These barriers, which hinder may work, are

as follows:

Difficulty of accessing latest data of internal operation.

Most limitation of this report is Banks policy is not to disclose some data

and information for obvious reason, which could be very much useful.

Lack of Experience on preparing these type of report

Sometimes data could not be verified.

The scope limited by the availability of data.

I was placed to this department for only 3 months of time and working like a

regular employee hindered the opportunity to put the better effort for the

study.

With All this limitation I try my best to make this report as best as possible. So readers are

requested to consider these limitations while reading and justifying any part of my study .


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Chapter: 2

Organizational Profile of BASIC


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Chapter: 2

Organizational Profile of BASIC

2.1 Background

Bangladesh Small industries and Commerce (BASIC) Bank Limited was established as a

banking company under the companies act 1913 and was incorporated under this act on the

2nd august 1988. The Bank launched its operation from the 21st January 1989. It is governed

by the Banking Companies act 1991. The Bank started as a joint venture enterprise of the

BCC foundation with 70 percent share and the Government of Bangladesh (GOB) with the

remaining 30 percent shares. The BCC foundation being nonfunctional following the closure

of the BCCI, the Govt. of Bangladesh took over 100 percent ownership of the Bank on4thJune 1992. However, the Bank is not nationalized; it operates like a private Bank as before.

BASIC is unique in its objective. It is a blend of development and commercial Banking

functions. The memorandum and Articles of Association of the Bank stipulate that 50 percentof loan able funds required to be invested in small and cottage industries sector. As others

commercial Banks, BASIC provides their clients full-fledged commercial Banking servicesincluding collection of deposits. Short term trade finance, working capital finance in

processing and manufacturing units and financing and facilitating international trade.

CAPITAL POSITION (up to 2011)Authorized capital Tk. 2000.00 million.

Paid-up capital Tk. 1964.65 million.

Total Reserve up to31.12.2011 Tk. 2509.78 million

The Bank is required to transfer 50 percent of its net profit before tax to capital

Fund as per the Banking Companies


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Chapter 2: Organizational Profile of BASIC

2.1.1 Capital structure and ratios

At the end of the year 2011 Bank's capitalization stood at 8.68 percent for tier 1 and 10.13

percent for total capital against the total risk weighted assets exceeding the required

minimum levels of 5 percent and 10 percent respectively. Thus the Bank was able to

maintain the confidence of investors and depositors while providing a lucrative return to the

Government, the sole shareholder of the Bank. Details of the capital structure were as

follows:

Particulars 2011 2010

(Amount in million take)

Core Capital (Tier 1)

Paid up capital 235759 1964.66

Statutory reserve 2224.69 1824.69Other reserve and surplus 653.17 469.99

Total of Tier 1 Capital 5235.45 4259.34

Supplementary Capital (Tire 2)

1%general provision on unclassified loans andoff balance sheet exposures

752.35 706.18

Revaluation reserve of HTM and HFT

securities123.16 107.55

Total of Tier 2 capital 875.51 813.73

Total Capital (Tier 1 +Tier 2) 6110.96 5073.07

Ratios to risk weighted 60304.50 53907.00

Capital Ratios to risk weighted

Tier 1Capital 8.68% 7.90%

Tier 2Capital 1.45% 1.51 %

Total Capital 10.13% 9.41%


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2.1.2. At a Glance of BASIC Bank Limited

Name BASIC BANK LIMITED

Date of incorporation August 2, 1988

Date of inauguration of operation January 21, 1989

Registered office Bana Shilpa Bhaban

73, Motijeel Commercial Area

Dhaka-1000, Bangladesh.

Head Office Sena Kalyan Bhaban(6t

floor)195, , Motijeel Commercial Area

Dhaka-1000, Bangladesh.

Logo

Name of the chairman of the Board Mr. Sheikh Abdul Hye Bacchu

Name of Managing Director Mr. AKM. Sajedur Rahman

Number of Branches (In year 2012) 65

Services provided Deposit scheme, Credit facility and Foreignexchange services

Paid up capital Taka 1964.65 million (2011)

Profit after tax and provision Taka 660.93 million (2011)

Ownership Government of Bangladesh

Banking software used CASTLE

Technology used Member of SWIFT

Earnings per share 33.64 (2011)

E-Mail [email protected]

Website www.basicbanklimited.com

SWIFT BKSIBDDHA015

Number of Authorized Dealer 15

Table:1At a Glance of BASIC Bank Limited
mailto:[email protected]:[email protected]://www.basicbanklimited.com/http://www.basicbanklimited.com/http://www.basicbanklimited.com/mailto:[email protected]


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Chapter 2: Organizational Profile of BASIC2.2 Organizational Goal

To employ funds for profitable purpose in various fields with special emphasis on small scale

Industries.

To undertake project promotion to identify profitable areas of investment.

To search for newer avenues for investment and develop new product to suit such needs.

To establish linkage with other institutions which are engaged in financing micro enterprises?

To co- operate and collaborate with institutions entrusted with the responsibility of

promoting and aiding SSI sector.

2.3 Organizational Structure

To achieve its organizational goal, the bank conducts its operation in accordance with

the major policy guidelines laid down by the Board of Directors, the highest policy

making body. The day to day operation off the bank is looked after by the

management.

2.3.1 Board of D ir ector

The Government holds 200 percent ownership of the bank. All the Directorsof the board are appointed by the Government of Bangladesh. The Secretaryof the Ministry of Industries is the chairman of the bank other directors of the

bank are high Government executive. The managing Directo5r are at thepresent 6 directors including the Managing Director on the board. The present

Board of Directors of the bank consists of the following members:

2.3.2 Management

The management is headed by the Managing Director. He is assisted by the

General Manage and Departmental heads in the head office. BASIC isdifferent in respect of hierarchical structure from other Bank in that it is much

more vertically integrated as far as reporting to the chief executive is

concerned. The Branches incharge of the Bank report directly to the Managing

Director and, for functional purpose, to the head of the departments.

Consequently, quick decision making in disposal of cases is ensured.


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Organ gram of BASIC Bank Limited

2.4 Customer Service

In this department, the customer service officer is the bank representative and is often

the first person contract with clients. The main job of the customer service officer is to

attend any concerns expressed by the clients. They are responsible for handling any

quarries by the clients and also serve as initial interviewers and inform future clients ofwhat kinds of accounts BASIC offers.

They explain what accounts is available for what clients and what prerequisites arenecessary for these accounts. BASIC has saving accounts, current accounts, fixed

deposits, Short- term notice account, Bearer certificate of deposit accounts etc. Thecustomer service department works closely with the Remittance and Bills department.

BOARD OF DIRECTORS

MANAGING DIRECTORS

GM

OPERATION

GM

DEVELOPMENT

OFFICER IN

CHARGEACCOUNT

OFFICER IN

CHARGECREDIT

AGMINTERNA

TIONAL

DGMINDUSTRIAL

CREDIT

AGMESTABLI

SHMENT

AGM

COMPUTER

DGM

ADMINIS

TRATION


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2.5 Bank Performance at a glance

This section deals with performance analysis of BASIC highlighting the certain aspect ofBASIC through chart and the situation of spread, Burden and productivity indicator over the

last five years.

Progress at a glance 2007 2008 2009 2010 2011

From the Balance sheet(Million in TK)

Authorized Capital 2000 2000 2000 2000 5000

Paid-up Capital 1247.4 1309.77 1455.3 964.65 2357.59

Reserve & Surplus 1349.17 1672.82 2468.65 2509.78 3124.17

Shareholder's Equity 2596.58 2982.59 3923.95 4474.43 5481.76

Fixed Assets 196.11 228.36 232.65 283.12 364.46

Total Assets 38773.91 4660.03 54308.31 61569.38 78031.73

Deposits 31947.98 38368.23 34501.69 49259.6 62650.73

Long-term Debt 1385.81 1708.4 2875.16 2718.46 2788.15

Loan & Advances 22263.35 27269.13 29261.53 46341.51 56884.76

Placement & Investment 13560.92 15659.03 12244.91 9294.02 13760.82

From the Income Statement

(Million Taka)

Gross Income 3,549.51 5,060.29 5,162.30 6120.53 8,825.20

Gross Expenditure 2458.41 3626.35 3,593.96 4,403.49 6,476.70

Profit before Tax 1091.1 1533.94 1568.34 1717.05 2348.5Profit after Tax 282.96 549.86 648.85 660.93 976.11

Tax Paid (Cumulative) 2790.98 3538.01 4,225.37 4,948.64 5,987.61

Others (Million Taka)

Import Business 21,266.57 27,359.77 33,976.60 42,206 47,087.80

Export Business 16,794.96 22,270.87 19,887.70 23,999 33,061.10

Financial Ratios (Percentage)

Capital Adequacy Ratio 12.91 12.04 13.48 9.41 10.13

Capital Fund to Deposit Liabilities 9.23 7.81 11.37 9.08 10.36

Liquid Assets to Deposit Liabilities 49.1 47.7 24.67 12.06 58.01

Loan to Deposit Liabilities 69.69 71.07 84.81 94.08 69.74Earning Assets to Deposit Liabilities 109.7 114.69 116.44 81.55 114.56

After Tax Return on Average Assets 0.83 1.3 1.41 1.24 1.23

Net Profit to Gross Income 7.97 10.87 12.57 10.8 12.81

Interest Magin Cover 176.8 137.08 135.79 95.15 214.56

After Tax Return on Equity 11.7 19.68 18.79 14.95 17.75

SMI/SSI Loan and

Micro Credit to Total Loan

Number of Branches 31 31 32 34 45

Number of Employees 721 735 776 964 601

56.73 59.32 56.93 56.78 67


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Chart 2.1: Total Asset

Amount in Million TK

0

10000

20000

30000

40000

50000

60000

70000

80000

2007 2008 2009 2010 2011

Total Asset

Chart 2.1 shows the Total Asset in million taka of BASIC Bank. The Total Asset

has increased during the period 2010 to 2011.

Chart 2.2: Placement & Investment


0

2000

4000

6000

8000

10000

12000

14000

16000

2007 2008 2009 2010 2011

Placement &Investment

Chart 2.2 shows the Placement& Investment in million taka of BASIC Bank. ThePlacement& Investment has increased during the period 2010 to 2011.


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Chart 2.3: Operating Income


0

200

400

600

800

1000

2007 2008 2009 20010 2011

Operating Income

Chart 2.3 shows the Operating Income in million taka of BASIC Bank. The

Operating Income has increased during the period 2010 to 2011.

Chart 2.4: Operating Expenses


0

50

100

150

200

250

300

350

400

2007 2008 2009 2010 20011

Operating Expenses

Chart 2.4 shows the Operating Income in million taka of BASIC Bank. The

Operating Income has increased during the period 2010 to 2011.


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Chart 2.5: Net Income


0

200

400

600

800

1000

2007 2008 2009 2010 2011

Net Income

Chart 2.5 shows the Net Income in million taka of BASIC Bank. The

Net Income has increased during the period 2010 to 2011.

Chart 2.6: No of Employee

Number of People

0

200

400

600

800

1000

1200

2007 2008 2009 2010 2011

No of Employee

Chart 2.6 shows the No. of Employ of BASIC Bank. The No. of Employhas increased during the period 2010 to 2011.


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Chart 2.7: Total Deposits


0

10000

20000

30000

40000

50000

60000

70000

2007 2008 2009 2010 2011

Total Deposits

Chart 2.7 shows the Total Deposit in million taka of BASIC Bank. TheOperating Income has increased during the period 2010 to 2011.

2.5.1 Return on Equi ty of BASIC

The return on Equity (ROE) of BASIC has decreased in 2011 compared to the year 2010.Interest margin cover has been increased due to increase of interest income of BASIC is in

2011. Net profit to Gross income is decreased during the year 2011. The after tax return onaverage asset has been also been decreased in 2011 compared to 2010.


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2.6 Technology of BASIC

The Board attaches grant importance on acquisition and use of appropriate informationtechnology in the bank. Since inception the bank has continued its effort to meet the complex

and dynamic needs of customers. BASIC bank has its own software developed in 1991. Localarea network (LAN) has been installed in Head office and 15 branches of the bank. Wide area

network (WAN) has been set up between Head office and branches using X.28 leased line ofBTTB. The bank has undertaken a project for5 introduction of Any Branch Banking ATM

automated Teller Machine and Debit Card at its 16 branches in Dhaka and Chittagong.The project will be implemented in 2002. Once completed, the valued customers will be able

to withdraw or deposit cash from any branch in Dhaka and Chittagong during office hours,

withdraw cash, transfer funds and pay utility bill at any time from any ATM and pay their

shopping bills using a debit card. These system is called centralized.

2.7 Risk management

In banking business, no reward can be expected without risk. In this backdrop, the

management has established a formal program for managing the business risk faced by the

bank. Considering the present non- performing loan position of the country, BASIC bank is

very much cautious about its investment. Every loan proposal is placed under careful scrutiny

before approval. Proposal of large amount of loans need approval of the board of Directors.

Credit lines are established for each borrower or borrower group. Internet audit team and

recovery team exercise close monitoring on every loan transaction. Management regularlyreviews the banks overall assets and liabilities structure and makes necessary changes in the

mix asset/liabilities of balance sheet. The Bank also has a liquidity policy to ensure financing

flexibility to cope with unexpected future cash demand. The Bank takes necessary action toavoid foreign exchange risk which is called as exposure.


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Chapter: 3

BASIC Bank Limited Gulshan Branch


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Chapter: 3

BASIC Bank Gulshan Branch

3.1. Information and location

Adders: Ridge park, crystal place (1st floor) H#22R#140, Gulshan south avenue, Gulshan, Dhaka-

1212

DGM/ Branch in charge : ShiperAhamed

AGM : Imrul IslamSWIFT Code : BKSIBDDH021

Zip Code: 1212

Institution Code: 1212

No of Employ : 54Corporate customer : BTRC

Phone : 9883501-2

Fax : 880 -2-9857307

Rent: 28,00,000 (28 lac tk)

Advance: 6,00,00,000tk (6 core tk)

3.2. At a Glance of BASIC Bank Limited Gulshan Branch

Particular Year2010 Year2011

Deposit 71494,00,000 624,00,00,000

Advance 72,00,00,000 180,00,00,000Expenditure 57,00,00,000 180,00,00,000

Net profit 38,90,00,000 53,93,00,000

Total Income 96,00,00,000 229,00,00,000

Import 250,00,00,000 352,00,00,000

Export 470,00,00,000 538,00,00,000


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Chapter: 4

Foreign Trade Activities of BASIC


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Chapter 4: Foreign Trade Activities of BASIC

Chapter: 3

Foreign Trade Activities of BASIC

4.1 Literature Review

Banks play a very important role in effecting Foreign Exchange Transaction of a country.

Mainly transaction with overseas countries is respect of imports; exports and Foreign

Remittance come under the preview of foreign exchange transactions. Banks are the vitalsector by which such transactions are effected/settled. Central Bank records all sorts of

foreign exchange transaction and therefore, transaction effected by the Banks and other

authorized quarters are to be reported regularly (Daily, Fortnightly, Monthly, Quarterly,

Yearly etc) to Bangladesh Bank by the foreign exchange department of every Banks. Foreign

Exchange Department plays a vital role to earn the Banks maximum profit. This department

is classified according to their activities. The foreign exchange department consists of threesections, these are as follows:

Import Section

Export Section

Foreign Remittance Section

Foreign Exchange Department, Banks facilitates their clients in enhancing InternationalTrade. The provision of finance to importers (Trust Receipt Facility, Documentary Credit

Facility) and exporters (Negotiation of export Bills, Purchase of Bill for collection)encourages enterprises to engage in trade and enhance their liquidity position. Bank makes

the payment International Trade through letter of credit to the exporter on behalf importers.Banks is a media of fund transfer from one party to another. In International Trade, as both

importers and exporters in different countries and do not deal with same currency, they have

to confront the risk of currency fluctuation. This exchange risk can be transferred from the

trader to the bank i. e. ready to provide the former with forward foreign exchange or currency

option so that the importer and the seller can devote their time to their business.


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4.2 BASIC Bank and Trade Finance

BASIC Bank plays an important role in international trade. The trade finance department ofBASIC is efficient of their activities and provides the best services to their clients. The major

clients of BASIC are corporate clients. Performing their activities since 1989, BASIC has avery good relationship with the big corporate clients of Bangladesh. Trade finance

department consist of Bills (Import) and Bills (Export).

4.2.1 BASIC Bank Statement pol icy

All BASIC employees are responsible for ensuring compliance with the Bank policies and

procedures Operational Manual (OM), Know Your Client (KYC), and other policies. It is

imperative that the trade finance staff is fully conversant with all aspects of the above stateddocuments relating to Letter of Credit (L/C), Documentary and clean Collection, Bank

Guarantee, and Bank to Bank Reimbursement and export Bills.

a. International chamber of commerce (ICC) Uniform Rules, customs and practice:

Transactions relating to L/C, Documentary and clean collection, Bank to

Bank reimbursement are processed subject to and in conformity with the

current versions of International Chamber of Commerce Publication

b. Credit policies:

Bank has their own credit policies and procedures for all Trade finance

activities. These are Credit Principle, Global credit portfolio limit, Credit

categories, Types of credit activities, Credit approval, Credit administration,

Credit monitoring and review.

c. Know Your Client (KYC):

Relationship Managers (RM) are responsible for ensuring that client profile

are kept current and that copy is distributed in accordance with the Banks

Know your client policy.


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4.2.2 Function of Trade F inance Department

Trade finance consists of the following areas of activity:

Import Bills

Export Bills

Bills Processing Unit

Basic function:

1. All transactions related to Import Transaction

2. All transactions related to Export Transaction

3.

Handling of L/C reimbursements4. Checking and collection of export bills for correspondent Banks.

4.2.3 Parties I nvolve in Trade F inance

1. The applicant: The applicant is the party that induces the Banks to issuesthe letter of credit. The applicant is normally obligated to reimburse the

Bank for any payment made under letter of credit.

2. The issuing Bank: The issuing Bank is the Bank that issues the letter ofcredit. The issuing Bank undertakes an absolute obligation to pay upon

presentation of documents drawn in strict conformity with the terms andcondition of the letter of credit.

3. The Advising Bank: An advising Bank simply advises a letter of creditwithout any obligation on its part. However, the advising Bank shall takereasonable care to check the apparent authenticity of the credit that it

advises. The advising Bank is typically a Bank in the Beneficiaries.

4. The Beneficiary: The beneficiary is the party entitled to drawn paymentunder the letter of credit. The beneficiary will have to present the required

documents to avail payment under the letter of credit.

5. The Confirming Bank: The confirming Bank confirms that the issuer hasissued a letter of credit. The confirming Bank becomes directly obligated

on the credit to the extent of its confirmation and by confirming the Bank

receives the rights and obligation of an issuer

6. The Nominating Bank:The Bank where drafts drawn under the credit arepayable. In case of a usance credit where drafts are to be accepted by this

Bank.

7. The Negotiating Bank:The Bank that negotiates document under letter ofcredit upon presentation. Typically advising Bank as nominated asnegotiating Bank


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4.3 IMPORT Bills

Import Bills deals with L/Cs and the issuance of L/Cs for import purposes. The letter of creditserves as a vehicle for the importer and exporter to ensure that their goods and money are

coming. It is important to remember that the Bank deals with documents and not goods.There are various steps towards the issuance of L/Cs; these steps will also BASIC, as will as

various Banks serving as negotiating, confirming, etc. Banks. L/Cs are used for the purchaseand sale of goods.

L/C are used mainly in trade. They usually include the mode of shipment of a specified

goods, and what the port of destination is the expiry of the shipment, the document all need to

be submitted to the issuing Bank, Certificate of Origin, of where the goods is produced,

inspection certificates, as to quantity and quality, are countries may have their own set ofdemands they want to ask.

There are two criteria for importing goods:

1. Commercial ( Normally BASICtakes 50% margin of total values of goods )

2. Industrial ( Normally BASICtakes 10% margin of total values of goods)

There are also two types of L/C:

1. Sight L/C: Sight L/C has also to be immediately through advanced payment can beallowed.

2. Usance L/C: Usance L/C has also to be paid at a fixed maturity date. For example,

payment upon the receipt of goods.

Beneficiaries that want to apply for a L/C need to have proper credit facilities. After

calculating the outstanding, and there is a still room, then L/C is issued. Calculation of

margin and charges are also done. Upon the receipt of goods, proper documentation is

certified, and then payment is done. The reimbursement of funds can be made in through

negotiating. They can be negotiated to the Bank of choice of the relevant currency.

4.3.1 Import Procedure and Practice

1. Regulation

2. Import policy

3. Licensing for Imports

4. Making the purchase contract

5. Opening the Letter of Credit

6. Amendments to Letter of Credit

7. Securing and Lodgment of Documents

8.

Verification and Lodgment of Documents by the L/C opening Bank


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.


Chart 4.1: Import business of other Banks (2010 and 2011)


0

5000

10000

15000

20000

25000

30000

35000

40000

45000

2010 2011

BASIC Bank

Prime Bank

Dhaka Bank

Chart 3.1 shows the import amount in other Banks (2010 and 2011). As

compared to other Banks BASIC import amount has fallen in 2011.

Chart 4.2: I mport business of BASIC Bank


0

2000

4000

6000

8000

10000

12000

14000

16000

2006 2007 2008 2009 2010 2011

Import (Million Tk.)

Chart 4.2 shows the import in million taka of BASIC Bank. The import has

increased during the period 2010 to 2011.


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Chart 4.3: Amount of Guarantee

0

200

400

600

800

1000

1200

1400

2006 2007 2008 2009 2010 2011

Garments (Million ok TK)

Amount of Garments increased as increase the number of Garments which is shown

as chart 4.3. It is increased by 30 percent in 2011 as compare in the year 2010.

4.3.2 Documentary Credit or L /C

Documentary credit is written undertaking given by a Bank ( Issuing Bank, Opening

Bank ) to a seller ( Beneficiary, Exporter ) at the request and on the instruction of the

Buyer ( Applicant, Importer ) to pay either at sight or at a determinable future date, astated sum of money against stipulated documents and fulfillment of all the terms

and condition in the D/C. It is most suitable on the flowing circumstances:

When the importer is not well known, the exporter selling on credit terms

may have importers promise of payments backs by a buyer Banker.

On the other hand, the importer may not wish to pay the exporter until it isreasonably certain that the merchandise has been shipped in the good

condition. A D/C in this case, can satisfy both the exporter and the importer.


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4.3.2.1 Vari ous steps in the operation of Documentary Credit

The importer and exporter have made a contract before a L/C is issued.

Importer applies for a letter of credit from his issuing Bank.

Issuing Bank opensa L/C, which is channeled through its overseas correspondentBank, known as advising Bank.g

Advising Bank informs the exporter of the arrival of the L/C.

Exporter ships the goods to the importer or other designated place as stipulated in the

L/C.

Diagram 4.4: Steps in D/C

Documents are sent to issuing Bank for reimbursement or payment.

Issuing Bank release documents to importers when the letter makes payment to theformer or against the letter trust receipt facility.

Importer takes delivery of goods upon presenting on the transport documents.

COTRACT,

IMPORTERBUYER -

APPLICANT

EXPORTER

SELLER -

BENIFICIARY

SHIP

GOODS

TAKE

DELEVERYGOODS

ISSUING BANK

L/C

ADVISING,

CONFIRMING,NE

GOTIATING

BANK

NEGOTIATION OF

EXPORTAPPLY L/C

PREPAREAND PASS

DOCUMENT

ADVISEL/C

RELEASE

DOCUMENTS

AGAINST

CASH

SENDDOCUMENT

MAKE

PAYMENT


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4.3.2.2 Different types of documentary credit or L/C :

1.Red clause credit

A red clause credit is a special type of credit with a clause inserted which authorizesthe advising or confirming Bank to make advances to the Beneficiary before

presentation of the documents.

In other wards, it is a pre- shipment finance in the form of a loan the advising /

confirming Bank provides to the beneficiary, with payment of principle and interest

Guaranteed by the issuing Bank of the client.

Possible risk in issuing a Red Clause credit:

Exporter may use the advance for other purpose.

Documents presented from the exporter may have discrepancies

unacceptable to the importer.

2.Revolving Credit

A revolving credit is a credit, which provide for the amount of the credit to berenewed automatically after use without the need to renew the credit every time. A

Revolving credit With respect to time can be cumulative or non cumulative.

It can be renewed with respect to either:

Time

Amount (i,e total value of the credit)

3.Transferable Letter of Credit

A Transferable letter of credit, which can be transferred in whole or in part by the

original beneficiary to one or more Second Beneficiaries. It is normally used when

the first beneficiary does not supply the goods himself, but acts as a middleman

between the supplier and ultimate buyer.

4.Standby Credit

A standby credit is a guarantee type of documentary credit. It might in many form

such as pure loan forms, bid bond and performance guarantee form etc

5.Back To Back Credit

When beneficiary receives a documentary credit which is not transferable, and he cannot furnish the goods himself, he may arrange with the Banker to issue a second credit

(which is known as Back to Back L/C) to a supplier to supply the goods.

The Bank issuing Back to Back Credit will obtain repayment through the master

credit which is deposited to the issuing Bank of the Back to Back Credit


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FOREIGN COUNTRY BANGLADESH

Diagram 4.5: Shows the Back to Back Credit Procedure

6. Standby CreditA standby credit is a guarantee type of documentary credit. It might in many form

such as pure loan forms, bid bond and performance guarantee form etc.

7.Confirmed Credit

If a letter of credit is confirmed by a Bank (The advising Bank), this mean that, in

addition to the definite undertaking to the issuing to honor beneficiarys draft, the

advising Bank also makes its a promise to pay the beneficiary.

ULTIMATE

BUYERAPPLICA

NT L/C

MASTERL/C

ISSUING

BANK

ADVISING

BANK

MIDDLEMAN

BENIFICIARYOF MASTER

L/C

APPLICANT OFB/B L/C

B/B L/C

ISSUING

BANK

ADVISINGBANK/NEGOTIATING

BANK

SUPPLIER

BENIFICIARY

OF B.B L/C


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4.3.2.3. Stage to a documentary Credit(A) Issuance of L/C

(B) Execution of Amendment

(C) Advising Letter Of Credit

(D) Confirming Letter OF Credit

(E) Advising Amendment

(F) Negotiation(G) The process include following:

At negotiating BankAt issuing Bank

BASIC Bank Banks in beneficiary locate

Diagram 4.6: BASIC involvement in D/C

ISSUING BANK

ADVING BANK

CONFIRMING BANK

CORRESPONENT BANK

NEGOTIATING BANK

BENIFICIARY

REIMBURSEMENT BANK


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4.3.2.4 Advantages and Disadvantages of Documentary Credit

DOCUMENTARY CREDIT

Advantages Disadvantages

IMPORTER * An importer can be assured the

exporter has complied with certain

steams and conditions as specified in

the D/C before payment.

* He can insist of shipment of goodswith in a certain time by stipulating alatest shipment date.

* He can have export advice fromhis Banker as to the D/C terms.

* He can ask for financialassistance from his Banker such as

T/R.* Protection offered by DCP500.

* Since Banks deals in document

only : Goods may not be the same

as these specified in the credit.

* Issuing Bank are obligated to

pay even through the conditions ofgoods may be poor.

* D/C commission are relatively

costly.* Line of credit or application is

necessary before an importer canopen an D/C, this may cause extra

inconvenience and is timeconsuming.

EXPORTER * The risk of nonpayment is lowerprovided he complies with D/C terms

and condition.

* It is a safe method through which

to obtain prompt payment after

shipment.

* The exporter can have export

advice from his Banker.

* The exporter also can seek

financial assistance from his Banker

before the buyer makes payment,such as negotiation of export Bills

advance etc.

* It is comparatively costly.* Sometimes, the terms and

condition can not be fulfilled such

as unreasonable shipment date

and expiry date, adding on D/C

the clause of Restriction of a

designated vessel to be informed

by D/C amendment .

* The goods are shipped before

receiving payment; So it is not

100% safe.


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4.3 EXPORT Bills

They deal with incoming L/Cs from various Banks. BASIC usually serves as an advising

Bank; but sometimes at request it also serves as confirming and negotiating Bank.


0

5000

10000

15000

20000

25000

30000

2010 2011

BASIC Bank

Prime BankDhaka Bank

Chart 4.7: Export amount in other Banks

Chart 3.7 shows the export amount in other Banks (2010 and 2011).

This department has to verify L/Cs. As a confirming Bank, BASIC takes responsibility over

the issuing Bank. If the issuing Bank does not pay the beneficiary then BASIC has to as an

advising Bank its job is to verify the L/C, and if it passes their checklist ; Advise it. If all

documents are in accordance with the L/C then payment can be authorized.


0

2000

4000

6000

8000

10000

12000

2007 2008 2009 2010 2011

Export

Chart 3.8: Export

Chart 4.8 shows the increasing export in million taka over time supported by BASIC Bank


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4.3.1. Expor t financing

Pre shipment credit

Post shipment credit

Financing of exports constitutes an important part of Bank activities. The exporter needsfinance at various stages; some at the Pre shipment stage and the other of the post

shipment stage.

4.3.1.1. Pre shipment credit

Pre shipment credit, as the name suggest, is given to finance the Activities of an

exporter prior to the actual shipment of good. Pre shipment credit is essentially asshort term credit and liquidated by negotiation or purchase of export bills covering the

merchandise. Generally, the Bank grants pre shipment credit against irrevocable,

confirmed, unrestricted letter of credit received by an exporter from an overseas

buyer.

Pre shipment credit given under the fol lowing ar rangement:

1. Cash credit against hypothecation:

Under these arrangements a credit is sanctioned againsthypothecation of the raw materials or finished goods intended for export.

2. Cash credit against pledge:

Not infrequently, a cash credit limit is sanctioned against pledge of

exportable goods or raw materials.

3. Cash credit against Trust Receipt:

Under this arrangement credit limit is sanctioned against trust receipt.

4. Packing credit:

This facility is generally extended when the goods become ready for the

shipment for a very short period. Packing credit is given to

the exporter against the security of railway receipt, steamers receipts etc.


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5. Back to Back Letter of Credit:

Under this arrangement the Bank finances an export by opening a letter ofcredit on behalf of the exporter who has received a letter of credit from theoverseas buyer but is not the actual manufacturers of producer of the

exportable goods.

6. Advance under Red clause Letter of Credit:

Under the red clause Letter of Credit, the Bank provides advance to the

exporter prior to shipment under the authority of the opening Bank.

Procedure for sanction of pre shipment fi nance:

The following are some of the points that must be borne in mind for this purpose:

1. Export Letter of Credit should from a reputable Bank abroad whose status has to

be ascertained. The letter of credit should be irrevocable, unrestricted, and valid

and preferably confirmed.

2. Expiry date of letter of credit should be properly recorded in the book.

3. The credit worthiness of the exporter and his exporter performance are to beinvariably ascertained.

4. The period for which the credit is sanctioned should be clearly mentioned.

5. Incase of pledge Bankers effective control should be mentioned.

6. Charges documents and other necessary documents as stipulated in the sanction

letter should be properly obtained.

7. Guarantee / Policies should be obtained under the export credit scheme

administered by Insurance Company.


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4.3.1.2. Post Shi pment Credit

Postshipment credit is given to the exporter by Banks after the actual shipment ofgoods. The necessity for post shipment credit arises because the exporters who have

shipped the goods have to wait for a long receiving payment for the overseas buyers;

the period of waiting depends on the terms of payment. The exporter needs funds to

carry on his normal export activities.

BASIC also finances the export at post shipment stage on verification of the credit

worthiness and soundness of both the buyers and the seller by preparing application

for limit (AFL).

1. Negotiating documents under letter of credit

The document generally include

(a) Bill of exchange or Draft

(b) Bill of lading(c) Insurance Policy

(d) Indent / Proforma Invoice

(e) Invoice

(f) Certificate of origin

(g) Inspection certificate

(h) Packing list

(i) Weight list and

(j) Any other documents specially called for in the letter of credit.

2. Purchase of DP and DA bills

The provision of finance by way of negotiation of documents against payment (DP)

and documents against acceptance (DA) bills is generally made in favor of the

exporter who have been given bill purchase limit.

The Bank should obtain instruction from the drawer of the bill covering the following

aspects:

Documents against payment or acceptance

Instruction to protest

3. Advance Against Bills for collection:

The Bank generally accepts bills for collection of proceeds when they are not drawn

under a letter of credit or when the documents, even through drawn against in L/Cs

contains some discrepancies


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4.3.2. Operating procedure

1. Telex / Swift Messages:

The procedures are as follows according to the system:

The following Telex and SWIFT Messages to be received from theRegister:

1. Export L/Cs

2. Amendments

3. Other messages:

Note:

a. For unauthenticated messages telex is to be sent to ourcorrespondent for authentication.

b. Some messages are to be sent to local Bank for testauthentication.

c. Bills and L/C related messages to be filled in therespective fill.

2.Advising:


Take reference for Telex, SWIFT and mail L/Cs and amendments from the

L/C register.

Fill up L/C checklist.

Insert L/Cs and amendments in the system.

Making photocopy of all messages.

Mail outside Dhakas L/C and amendments by courier and pack mail.

3. Document Mailing


Type bill schedule.

Endorse bill of exchange and shipping documents.

Endorse in L/Cs.

Photocopy of the documents.

Shorts Bills.

Mail clients information


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4.4.3 Methods of payment in export sales

The following methods of payment are ranked in the order of measuring risk to the exporter.

In other wards, they are increasingly unfavorable to the exporter butfavoredby the importer.

A. Cash in advance

B. Documentary credit or L/C

(note: this already explained above the bills import)C. Documentary collection

(note: this defined to next section)

D. Open document

A.Cash in advance

Cash in advance gives exporter the greatest protection because exporter

either before shipment or upon arrival of the goods receives of payment.

Sometimes exchange controls of the importers country may cause payment delays or

even prevent method it most suitable.

1. Pays exporter before exporter makesDelivery of goods

2. Delivery of goods upon receipt ofPayment

Diagram 3.9: Cash in Advance

B. Open account

The credit items are arranged between the buyer and the seller, but the seller has little

evidence of the importers obligation to pay a certain amount at the certain date. This

payment method is, therefore, risky for the seller.

IMPORTER

BUYER

DRAWEE

EXPORTER

SELLER

DRAWER


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Chapter 4: Foreign Trade Activities of BAS

Diagram 3.10 shows open account procedure

1. Exporters ships the goods before being paid

2. Importer makes payment upon

Receipt of goods

Diagram 4.10: Open Account

Although the payment method bears a higher risk for seller, open accounts sales have greatly

expanded due to the major increase in international trade, and the sellers eager to major

export volume.

A comparative statement of the methods of payment is given below with the classification of

risk category and merits and demerits of each method:

Method Risk Chief advantages Chief disadvantages

Cash in advance L No credit extension is

required.

Can limit sales potential

disturb some potential

customer.Sight draft M/L Retains control and title;

Ensured payment before

goods are delivered.

If customer does not orcannot accept goods, goods

remains at port of entry and

no payment is due.

Letter of creditIrrevocable

Revocable

M

M/H

Bank accepts theresponsibility to pay; payment

upon presentation of papers.

If revocable, terms canchange during contract

week.

Time draft

M/H

Lowers customer resistance

by allowing extended

payment.

Same as sight draft, plus

goods are delivered before

payment is due or received.

Consignment sales M/H Facilities delivery; Lowers

customer resistance.

Capital tied up until sales;

must establish distributions

credit worthiness; need

political countries; increased

risk from currency controls.

Open account H Simplified procedure; No

customer resistance.

High risk; Seller must

finance production;

increased risk from currency

controls.

* L: Low risk ; M: Medium risk ; H: High risk

IMPORTER

BUYER

DRAWEE

EXPORTER

SELLER

DRAWER


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4.5 Collection

Collection are a method of settling the monitory side of international Trade transactions inboth goods and services. Where goods are Involved, the documents allowing the buyer to

take delivery of these Goods will be routed through Banks in the exporters and importersCountries.

Chart 4.11 Bi ll s for Collection


0

0.5

1

1.5

2

2.5

3

3.54

4.5

2007 2008 2009 2010 2011

Bill for Collection

Chart 4.11 shows that the total amount of bill for collection over the

year. It is increased very sharply growth rate during the 2001 to 2005.

There are two types of collection.

1. Documentary Collection

2. Clean Collection

The first type is documentary collection, which means collection of:

Financial documents and commercial documents.

Commercial documents only.

The another type is clean collection. It consists of one or more bills of exchange or

promissory notes, for obtaining cash. Clean collection requires no other commercial

documents to be attached.


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Please refer to the diagram on 4.12 for an explanation of

various steps in the operation of the collection: -

Diagram 4.12 shows the collection procedure

1. Goods shipped to buyer

4.Present 5. Makes payment or 7. Pays exportdocument accepts draft

for payment 2. ForwardDocuments

6. Sent payment

3. Forward DocumentsForward Documents

Diagram 4.12: Collection

4.5.1 Documentary coll ection

These collection entails the use of commercial documentation, they are concerned

with goods and, although not obliged, Bank frequently take steps to protect the goodsin their customers interests.

The payment instruction in a documentary collection is usually a bill of exchange,

which is drawn by exporter (Seller) on the importer (buyer)

The bill of exchange that can be drawn is the following two types:

1. Sight bill: A bill of exchange drawn by the drawer (exporter) at sight for immediate

payment.

2. Term bill: (usance bill) A bill of exchange drawn by the drawer (exporter) and

provides times for the drawer to pay at a fixed or determinable future date, such as 30days sight.

PRESENTING

BANK

EXPORTERSELLER

PRINCIPLE

IMPORTERBUYER

DRAWEE

COLLECTING

BANK

REMITTING

BANK


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4.5.2 Clean Col lection

Collection, which do not include goods but consist of documentation only, usually abill of exchange, or occasionally a check, is known as clean collections. They are

frequently used for the settlement of trade on open account and for service rendered,rather than goods supplied. They are very simple for Banks to process since goods are

not directly involved.

The term Collectionapplies to the procedure under which payment to the client fora check, draft or similar instrument is made only after the proceeds have been

received from the Drawer. Thus Collection requires special handling.

4.5.3 Advantages and Disadvantages of Clean Col lection

COLLECTION

Advantages Disadvantages

IMPORTER * For clean collection, buyers

can take possession of thegoods before payment.

* For D/A collection, the buyer

can inspect and sell the goods

before payment.

Terms bill provide the buyer

with a period of credit from the

exporter. Hence its liquidity

can improved.

* If he default on an accepted Bill

of exchange (Notwithstanding thepoor condition of the goods).

Legal action can be taken against

him.

* If he refuse to accept or pay a

bill, pretest by the exporter

against non acceptance or the

exporter can take non payment,

this can damage the reputation of

the importer.

EXPORTE

R

* It is cheaper than D/A.

* A presenting Bank may haveinfluence over the foreign

buyer and thus he more able to

collect the payment than an

open account basis.

* Exporters may obtain

immediate payment bynegotiation of the bill or

applying for Bank advance.* Exporter can retain control

over the goods D/P.

* Loss of control over goods

under D/A.* No guarantee that buyer will

pay because Presenting Banks

are to collect the Payment only.

* In case of delays or difficulties,

an exporter has to bear all the cost

arising such as demurrage chargesin the importers country.

* He has to bear buyers creditrisk and country risk.


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4.6. Banks facilities and Services to Exporter and Importer

4.6.1. Export facil i ties and Services

Overdraft (O/D): Overdraft are granted to a customer in order to finance his

daily business requirements and assist his cash flow position.

Bills (Advance): The Bank may agree to offer thus type of finance if thinking

that the Exporter is reliable

Negotiation of export bills: After the beneficiary has effected shipment, he may

present documents to his Banker for negotiation. Sight bills might be negotiatedby the exporters Bank.

Performance Bond: This is a written instrument, issued by a Bank or a surety

company, stating that the exporter will comply with the terms of the contract with

the buyer, otherwise the buyer will receive compensation for any losses suffered

as a result of the exporters failure to perform under the contract.

Guarantee/Indemnity: Guarantee and Indemnity are Banking service available

to both exporters and importers.

Red clause credit: It is a pre-shipment finance granted to the exporter by and atthe risk of the issuing Bank.

Packing loan: The purpose of packing loan is to help the exporter to buy raw-

materials for production or to buy the necessary goods required by the D/C.

Letter of Indemnity: It is a undertaking given by a Bank on behalf of hiscustomer to another Bank. The Bank giving the promise is primarily liable.

Leasing: This is a financial arrangement in which the Banks and their subsidiary

companies known as lesser of leasing companies hold the title to property or

equipment which the customer known as the leases use it.

4.6.2. Import facil i ties and services

A. Overdraft (O/D)

B. Documentary Credit Facility (D/C)

C. Loan against imported merchandise: LAM is an advance to the

importer based on the imported goods as the security.


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D. Trust receipt facility: This is a document executed by a customer whoagrees to hold the goods in trust for and on behalf of the Bank.

E. Shipping Guarantee: A shipping guarantee is an undertaking given by aBank on behalf of his customer to a shipping company to return the

original transport documents.

F. Collection

4.7. Remittance

Designing a global Remittance policy,

The task facing International financial executives is to co-ordinate the used of the various

financial linkages in a manner consistent with value maximization for the firm as a whole.This tasks require the following four inter-related decisions:

1. How much money (if any) to remit

2. When to do so.

3. Where to transmit these funds

4. Which transfer method(s) to use

A common or shared responsibility with cash development is the custodianship of the volt.

Two groups independently monitor the inflow and outflow of financial instruments to and

from the volt. Bangladesh Bank checks deposits are processed for collection from

Bangladesh Bank.


0

5

10

15

20

25

2008 2009 2010 2011

Remittance

Chart 4.13 shows Remittance in Million taka of BASIC Bank. It is shown that BASIC Banks

Remittance business has been increased by steady growth rate during the year 20082011.


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Remittance Department

This Department deals with the basic paying and receiving of funds into the Bank, for the

clients. They transfer, or wire money abroad as well as locally through TT or SWIFT, etc..

They work very closely with the cash department. They also sell Government bonds to clients

and organizations.

Remittance Department works as an intermediary for clients and actions taken on their

accounts. Automatic credits and debits are not necessary done, especially in cases ofInternational transactions. They deal with fund transfers both locally and abroad as well.

A principal mode of remitting fund abroad is through SWIFT. Other traditional mode TT,Telex, Mailing of Drafts, and transfer of TCs is also used. In both case of incoming and

outgoing remittances the purpose is to be disclosed. Local fund transfer is also done here,

there areas of transfer activities include:

1. Issuance of Pay order

2. Salaries

3. TT to any where the country

4. TT to other parts of the country

4.7.1 Inward Remittance

Function in Inward Remittance

Step 1: Fund Received

Step 2: Clarification by

I. Own Client

II. Other Client

III. Foreign Mission and International Bodies

Step 3: If the fund is for own client

I. Check faster accountII. Valid IRC Copy

III. Vat Register CertificateIV. Check the fund account

V. Message transfer date

Step 4: Process the fund


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4.7.2 Outward Remi ttance

Outward Remittance

Bank Condition:Client must have an account in BASIC

Process:

1. Travel Mucilaginous

2. Document transfer by SWIFT other transaction activities

Types of Transaction (Remittance Department):

1. Govt. Bond Sold

2. Govt. Bond interest paid

3. Other Bank check collection

4. NFCD Open

5. NFCD interest paid

6. NFCD Encasement

7. Credit Advance/Debit Advance

8. Outgoing Payment Instruction9. Collection item both local/Foreign

10.Incoming Payment Instruction Pay order Installed11.Salary Disbursed

12.Foreign Currency Draft Issued13.Correspondence

14.Incoming Collection15.Bangladesh Bank Check Collection


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3.8. Core Concept of Foreign Exchange

a. Foreign Exchange Business

In Foreign Exchange Business, the Commodity is Currency, Buying and

Selling of any currency against local currency is called Foreign ExchangeBusiness.

According to Bangladesh Bank order 1972, Foreign exchange means foreign

currency and includes any Instrument drawn, accepted made and issued underclause 13 of section 16 of the Bangladesh Bank order 1972.

b. Foreign Exchange Rate

The rate of exchange is the price of the one currency expressed inters ofanother currency. The rate at which exchange dealer would buy or sell foreign

exchange in terms of the domestic currency is known as the rate of exchange.

c. Foreign Exchange Transactions

All transactions related to FOREX are monitored and controlled by the

Treasury Department of the Bank. This Department is responsible for

providing all FOREX rate, interest rates. Basically there are two types of

transactions taking place through out of the Bank spots and forwards.Approximately 95% of all FOREX transactions are spot transactions.

1. Different terms used in foreign exchange

Terminology of foreign exchange market. A foreign exchange rate is the price of one

currency expressed in terms of another currency.

Spot rate: A spot rate is a rate quoted immediately, for delivery of the currency to thebuyer within the working days.

Forward rate: The exchange rate quoted for transaction which called for the delivery

of the currency at future date.

InterBank market:This is a foreign market for commercial Banks only and the

rate is known as InterBank.


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A Forward Exchange Contract may be either f ixed of option

1. Fixed means that performance of the contract may take place on a specified date inthe future.

2. Option means that performance of the contract may take place, at the option of thecustomer, on any date before maturity.

Premium and Discount

Forward rate for a currency is quoted as an adjustment to the spot rate. This departmentIs at a either Premium or a Discount.

If the forward rate of a currency is more expensive than the spot rate, it is

quoted in premium

If the forward rate for a currency is more cheaper than the spot rate, it is quoted

in discount.

Buying rate and Selling rate

Buying rate means the Bank is buying the currency. The customer is selling the

currency to the Bank in this transaction. Selling rate means the Bank is selling the currency. The customer is buying the

currency to the Bank in this transaction.

Exchange rate is quoted in Buying rate and Selling rate, the difference of the rate isCalled Spread.

2. Relevancy of Foreign Exchange Revenue for BASIC

Revenue generated in Foreign Exchange (FOREX) business has turn out to be an

important element for generating income for BASIC.


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4.9. Factor Affecting Fluctuation In Exchange Rates

Medium and Long -Term Factors:

1. Balance of payment

If the country suffer from a balance of payment deficit, its currency will depreciate.

If, on the other hand, a country experiences balance of paymentsurplus, its currency

will appreciate.

2. Rate of InflationIf the country suffer from high inflation rate, its currency will depreciate. On the other

hand, if a country experiences a relatively low Inflation rate, its currency will

appreciate.

3. Interest Rate

The currency, which gives a relatively high interest rate, will appreciate while the

currency, which only offer a relatively low interest rate, will depreciate.

ShortTerm Factors:

1. Official Intervention

2. Hot Money

Hot Money refers to money, which flows in for speculative purpose. When HotMoney Flows into a country, its currency will appreciate and vice versa. Hot money is

a very substantial forces affect ing the movement in exchange rate.

4.9.1 Exchange rate in Bangladesh and its function over time

Bangladesh currency is pegged to composite of nine currency. In Bangladesh capital

account transaction are regulated even through our currency is made convertible in

current account of the Balance of Payment in 1993 and therefore our exchange rate is

technically fixed.

The four factors that are usually taken into consideration while determining exchangerate in Bangladesh are given below

Real effective exchange rate (REER has a positive relationship with exchange rate)

Balance of current account (BOCA has a negative relationship with exchange rate)

Foreign Exchange Revenue (FER has a negative relationship with exchange rate

Unofficial exchange rate (UER has a negative relationship with exchange rate).


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4.10. Ways of avoiding Exchange Risk1. Forward exchange contract:

An immediately firm and binding contract

For the purchase and sale of a specified quantity

At a rate of exchange fixed at a time the contract is made.

For delivery at a future time

Types: Contractsa) Fixed performance at a specified data in the future

b) Option : Performance at any data between two

1. specified date(Note: Option under forward exchange contract should not be mixed up with

currency option).

2. Currency Option3. Open a foreign currency account

Buy foreign currency and deposit it in a foreign currency account. Any receipts

and payments are to be made from this account so as to avoid any losses in the

movement of exchange rate.


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Chapter: 5

Other Department


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Chapter: 5

Other Departments

5.1 General Banking Department:

1. Accepting Di fferent Types of Deposits

1 Current Account

An active account at a bank into which deposits can be paid and from whichwithdrawals can be made by cheque. The bank issues cheque books free ofcharge but bank sometimes make charges for current account, based on the

number of transactions undertaken, especially for business accounts.

2 Saving Account

A bank account into which personal savings are paid. Interest paid on a saving

account is usually higher than that paid on a deposit account and withdrawals

are usually restricted.

3 Short Term Deposit

Deposits rose for a short period to cover an exceptional demand for funds over

a short period.

4 Fixed Deposit Receipt

Deposits for a specific period for a specific interest rate.

2. Account Opening

The following requirements are needed for opening an Account:

1. Two copies passport size photograph2. One copy passport size photograph of nominee

3. National identification4. Utility copy (Electricity, Gas, Water etc)


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Chapter 5: Other Departments

I. Cheque Book Issue

II. Transfer of an AccountIII. Closing of Account

5.2 Advance or Loan Department

The Advance department performs one of the most important tasks for it generates theincome for the company. So the company must sell its product very carefully so that it

can provide more income. And the bankers get to be more about bad loss of the loans

and advances. They evaluate and assessment the credit risk of loan. They approveloan and advance under dual signs, among these signs one must be by the lending

authority.

6.2.1. Secur i ty of L oans and Advances

Normally a banker does not lend money without adequate security. The different

types of securities which may be offered to a banker generally are as follows:-

Immovable properties.

Movable properties: - Goods Documents Stock exchange securities Life insurance policies Fixed deposit receipts Book debts Supply bills

Securities may also be classified as:-

1. Personal and tangible.

In all advances the bank has a right of action against borrower personally; although the

borrowers personal liability is presumed, the banker, where the

debt is not fully realized from the sale of the tangible security, the bank has usually a right ofaction in law to recover the balance from the borrowers other

assets


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2. Primary and collateral.

Primary security is that which is regarded as the main cover for an advance and is depositedby the borrower himself. The term collateral security is applied to security deposited by a

third party to secure customers borrowing if however, the banker has to realize it beforeclaming the balance from the debtors estate. In this case, therefore, if the dividend received

from the official receiver in insolvency does not cover the balance due to the banker, he will

have to suffer a loss. In the other case, the banker can recover the balance, if any, out of the

sale proceeds of the collateral security. If any Attributes of a good tangible security: There

are certain qualities, which a good tangible security should possess. Some of the important

attributes are given below

1. Marketability

2. Easy ascertainment of value

3. Stability of value:4. Storability

5. Cost and labor of supervision6. Durability

7. Transportability8. Ascertainment of title

9. Easy transfer of title10.Absence of contingent liability

11.Yield

Margin:

A bank does not meet cent percent the requirements of a borrower. The borrower

should have some stake in the business. In that case they follow some application:

He will devote more time.

He will effort to make the business a success than may be in the case when heis dealing entirely with borrowed funds

The difference between the value of the securities and the amount up to which the

borrower can draw is known as margin. The value of securities, less margin, is known

as drawable limit or advance value.

A banker must keep adequate margin while granting loans because of the following

reasons:

The market value of the security is subject to fluctuations.

The security remains the same while advance against the borrower may go onincreasing on account of non-payment of interest, charges etc.


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Factors determining margin:

The margin to be kept by a banker in respect of a particular security depends onseveral factors. Some of them are follows

a) Fluctuations in market prices.b) Financial soundness.

c) Central Banks control


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Chapter: 6

Finding, Recommendation & Conclusion


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Chapter 6: Finding, Recommendation & Conclusion

Chapter: 6

Finding, Recommendation & Conclusion

6.1. Findings

In recent years, the foreign exchange business of BASIC Bank ltd is increasing at a faster

rate. As a state owned scheduled bank, BASIC Bank Ltd is playing an important role toward

the growth and economic development of Bangladesh. BASIC bank is rendering a stable

support to the national foreign exchanges business. Although the foreign exchange business

is increasing day by day there are also some obstacles around it which are as follows:

1. One problem relates to technology, the bank must try to adopt new

technologies. Otherwise the profitability of the bank may hamper.

2. To meet the challenges in the banking industry and to help employees to adapt

to the changes and new working condition, training is essential but no such

training center has yet been established in BASIC Bank. Moreover, training

given to employees is not adequate.

3. Besides, SWIFT is being used in some branches and the head office of the

bank for trade finance related operations like documentary credit,

documentary collections, fund transfer, guarantee, etc. with optimum security,

but not in all branches.

4. The officers are very helpful to the business men. Some of our business men

do not know exactly the procedures of opening L/C. the officers of BASIC

bank help them properly to execute their business.

5. To make the process easy, bank should give emphasis to use the modern

communication media like e-mail, fax, internet etc.

6. Modern technical equipment like computer, ups, modem etc. is not sufficient

in foreign exchange department, which results in the delay of exchange

process.

7. The data base system of foreign exchange department is not very systematic.

Also documentation and filing process of foreign exchange operation is not

user friendly, which sometimes wastes valuable time.


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8. Letter of credit (L/C) opening system for the importer is easy. it consumes

time and money as well.

Chapter 7: Finding, Recommendation & Conclusion

6.2. Recommendation

I had the practical exposure in BASIC Bank Ltd. for just twelve weeks, with my little

experience in the bank in comparison with vast and complex banking system, it is very

difficult for me to recommend. We have observed some shortcomings regarding operational

and other aspects of their banking. On the basis of my observation we would like to

recommend the followings:

The branch need to set up well designed IT section by using more updated

technology and information.

Adequate on the job training is required for the newly employed personnel.

SWIFT service should be introduced in each and every branch of the bank, which

will help to smoothen the foreign exchange operations of the bank.

Some officers of the bank are not self motivated. They should be self- motivated

by training.

The bank should do more advertisement for attracting new customers.

Bank needs sufficient computer, ups, modem etc for foreign exchange department.

The bank should develop an effective database system to analyze the data of

foreign exchange business.

Bank should provide emphasis to make the documentation and filing process of

foreign exchange operation user friendly.

Letter of credit L/C opening system for the exporter should be easier.

I think the Management should employ at least few more employee in foreign trade

department as I have seen from my practical experience that many customers wait for a long

time for any service as they see that only one concerned official is doing their best to meet the

requirements of the customers.


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6: Finding, Recommendation &

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