LETTER OF TRANSMITTAL

October 10, 2009

Aklema Choudhury LemaLecturer,Dept. of Accounting & Information Systems,University of Dhaka.

Subject: Submission of Internship Report.

Dear Madam,It is a great pleasure and privilege to present the internship report titled Foreign Exchange Operation of National Bank Limited which was assigned to me as a partial requirement for the competition of my BBA Program.

Throughout the study, I have tried with the best of my capacity to accommodate as much information and relevant issues as possible and tried to follow the instructions as you have suggested. I tried my best to make this report as much informative as possible. I sincerely believe that it will satisfy your requirements. I however sincerely believe that this report will serve the purpose of my internship program.

I am grateful to you for your guidance and kind co-operation at every step of my endeavor on this report. I shall remain deeply grateful, if you kindly put some effort to go through the report and evaluate my performance.

All of my efforts will be successful if the report can serve its purpose.

Sincerely Yours,

Muhammad Amzad ShakilRoll. No. 11121BBA 11th Batch Dept. of Accounting & Information Systems,University of Dhaka

ACKNOWLEDGEMENT

First, I would like to express my deep gratitude to the creator, who created and nurture me in this transitory world. I also express my gratitude to him for giving me an opportunity to complete my internship program successfully as a partial requirement of MBA program

Then, I would like to express my indebtedness and deep sense of gratitude to my honorable supervisor lecturer Aklema Choudhury Lema, Department of Accounting & Information Systems, University of Dhaka, whose scholastic supervision, kind and sympathetic guidance, warm advice and encouragement have enabled me to materialize this report successfully.I would like to express my sincere gratitude to all executives, officers and employees of National Bank Limited, Foreign Exchange Branch, who had responded cordially to meet my needs relating to the report and gave me feeling that I am not alone in taking this great responsibility. Of them, I would like to mention the name of-

1. Mr. Md. Mostofa kamal (Executive Vice President & Branch Manager)2. Mr. Md. Nuruddin Zamader(AVP), Accounts.3. Mrs. Roksan Parvin(SPO), Export.4. Mr. Md. Mostafa Kamal Ahamed(SPO), Export.5. Mrs. Hasina Momtaz (SPO), Export.6. Mr. Md. Nazrul Islam (SPO), Import.7. Mr. Md. Salauddin Miah (PO), Head office NBL.

Without their effort, it would be impossible to bring this report to the light.

I shall never forget the help from some books, term papers, journals, etc., above all I really be indebted to authors of these works.I am grateful to my beloved parents, elder brother, friends and well-wishers for their inspiration that lead me to go ahead. Finally, I thank all the persons who have directly or indirectly contributed in preparing this report.

EXECUTIVE SUMMARY

An internship program is very important & essential for acquiring experience through learning and spreading the scope of Knowledge. I have done my internship program in National Bank Limited, Foreign Exchange Branch, Taranga Complex, 19, Rajuk Avenue, Motjheel, Dhaka-1000.This internship report is aimed at providing a comprehensive picture to the areas of Foreign Exchange operation of National Bank Limited. The report has been divided into twelve parts. These are- Introduction, Brief History of Banking Sector of Bangladesh, Corporate review of NBL, Foreign Exchange, Documents Used in Foreign Exchange Business, Letter of Credit (L/C), Import, Export, Foreign Remittance, Findings and Analysis, References

National Bank Limited is one of the largest commercial Bank of Bangladesh. The main objective of the Bank is to provide all of banking services at the doorsteps of the people. The Bank also participates in various social and development programs and takes part in implementation of various policies and promises made by the Government.

National Bank Limited plays a pioneering role in handling foreign trade and foreign exchange transactions. With wide network of branches at home and a large number of correspondent banks worldwide, it is handling the largest volume of export-import business including homebound remittances. For this reason, Foreign Exchange of the Bank is very much essential. But now a days banking sector of Bangladesh is suffering the disease of default culture which is the consequence or result of bad performance of most banks.

There are three types of modes of foreign exchange market, which are- Export Financing, Import Financing and Foreign Remittance. Foreign Exchange Branch does these foreign exchange activities vastly. In this report, I mention the overall operating procedure of foreign exchange transaction of National Bank Limited. I also mention the findings of my report and describe the recommendation to overcome the limitation.

I have taken all the reasonable care to ensure the accuracy and quality to make the report standard. And I believe that it has included all the necessary information to be relevant.

ACRONYMS

A/CAccountADAuthorized DealerB/LBill of LadingBB Bangladesh BankBOE Bill of ExchangeCCI & EChief Controller of Export& Import CFR Cost & FreightCIB Credit Information BureauCIF Cost Insurance & FreightCRRCash Reserve RatioDD Demand DraftDP note Demand promissory NoteEPB Export promotion BureauEPZExport Processing ZoneERCExport Registration CertificateEXP Export FormFC Foreign CurrencyFDD Foreign Demand draftFOB Free On BoardHS Code Harmonized System of CodingIBC Inward Bills for CollectionIBCA Inter Branch Credit AdviceIBDA Inter Branch Debit AdviceICCInternational Chamber of CommerceDCCIDhaka Chamber of Commerce and IndustryIMF Import FormIRC Import Registration CertificateL/C Letter Of CreditLCAF Letter Of Credit Authorization FormLBCLocal Bills for CollectionLDBCLocal Documentary Bills for CollectionNBLNational Bank LimitedOBC Outward Bills for CollectionODBCOutward Documentary Bills for CollectionPO Payment OrderPSI Pre shipment InspectionTT Telegraphic TransferSWIFT Society for Worldwide Interbank Financial TelecommunicationUCPDCUniform Customs & Practice for Documentary CreditTABLE OF CONTENTS

Chapter Page no. Letter of transmittalAcknowledgementExecutive summaryAcronyms

Chapter-1: Introduction 1.1 Origin of the report1.2 Objectives of the study 1.3 Scope of the study1.4 Methodology of the study 1.5 Sources of data 1.5.1 Primary Data 1.5.2 Secondary data 1.5.3 Data analysis and interpretation1.6 Limitations of the study

Chapter-2: Brief History of Banking Sector of Bangladesh2.1 Evolution of the word Bank2.2 The emergence of modern bank 2.3 Development of banking in Bangladesh2.4 Public sector Banking 2.5 Private sector Banking

Chapter-3: Corporate review of NBL3.1 History of National Bank Limited3.2 Vision of National Bank Limited3.3 Mission of national bank Limited3.4 Objective of national Bank Limited3.5 Strategies of National Bank Limited3.6 Business Goal7.7 The Future thrust3.8 Corporate Culture3.9 Growth and Development of NBL3.10 Branches of NBL3.11 Management Hierarchy of NBL

Chapter-4: Foreign Exchange4.1 Meaning of Foreign Exchange 4.2 Regulatory Requirements of Foreign Exchange4.3Why Foreign Exchange is to be controlled 4.4Functions of Foreign Exchange Department4.5 Foreign Exchange Condition of NBL4.5.1Foreign Remittance Condition 4.5.2 Import Condition4.5.3 Export Condition

Chapter-5: Documents Used in Foreign Exchange Business5.1Leter of Credit (L/C)5.2Bill of Exchange5.3Bill of Leading5.4 Commercial Invoice5.5 Certificate of Origin5.6 Inspection Certificate5.7 Insurance Certificate5.8 Proforma Invoice5.9 GSP Certificate5.10 Packing List5.11 Documentary Credit

Chapter-6: Letter of Credit (L/C)6.1 Parties Involved in L/C Transaction6.2 Basic Forms of Documentary L/C6.3 Classification of L/C in terms of Function6.4 Steps in L/C Opening 6.5 Required Documents for L/C Opening6.6 Parties Involved in Offering Sheet6.7 Justification for Fitness of L/C Opening 6.8 Methods of L/C Settlement6.9 Operation Procedure of Documentary L/C6.10 Awarring matter of L/C6.11 How L/C work6.12 Presenting a L/C6.13Common Mistakes Made in L/C

Chapter-7: Import7.1 Meaning of Import7.2 Who is an Importer?7.3 Types of Import 7.4 Goods are not Importable7.5 General Provisions for Import7.6 Import Procedure7.7 Documents need to open a cash L/C7.8 Procedure to be followed by banks for acceptance/issuance of LCA Form7.9 Various Method of Import Financing7.10 Instructions Issued by Bangladesh Bank 7.11 Preparation of Proposal and submitting it 7.12 Documents Receipt and Scrutiny 7.13 Import Portfolio of National Bank Ltd7.14 Import state of affairs of NBL

Chapter-8: Export8.1 What is Export?8.2 Documentation Used in Export 8.3 Registration for the Exporter8.4 Processing of export order (export cycle)8.5 Making sales contract & receiving L/C8.6 Export Finance8.6.1 Pre Shipment Finance in Export Trade8.6.1.1 Types of Pre Shipment Finance8.6.1.2 Establishing Back-To-Back L/C 8.6.2 Post Shipment Finance8.6.2.1 Basic Features8.6.2.2 Financing for Various Types of Export Buyers Credit8.6.2.3 Types of Post shipment Finance8.7 Foreign Documentary Bill Purchase (FDBP) 8.8 Certification of Export Forms by Authorized Dealers8.9 Preparing out and Delivery of Shipping Documents8.10 Endorsement of Shipping Documents by AD8.11 Submitting the Shipping Documents to AD 8.12 Retention Quota for Exporter 8.13 Shipment of goods under FOB and CIF terms 8.13.1 Shipment of goods on CIF terms 8.13.2 Shipment of goods on FOB terms 8.14 Export Realization Proceed 8.15 Export Development Fund 8.16 Overdue Export Bills 8.17 Export Portfolio of National Bank Ltd 8.17.1 Packing Credit (PC)8.17.2 Secured Over Draft (SOD) 8.17.3 Back to Back L/C Commission8.17.4 Local Documentary Bills for Purchase

Chapter-9: Foreign Remittance9.1Meaning of Remittance9.2 Remittance procedures of foreign currency9.3 Modes of Foreign Remittance 9.3.1 Foreign Inward Remittance9.3.2 Foreign Outward Remittance9.4 Facilities for Wage Earners

Chapter-10: Findings and Analysis10.1 Major Findings 10.2 Recommendations 10.3 Conclusion

Chapter 11: References

CHAPTER-01 INTRODUCTIOIN

1.1 ORIGIN OF THE REPORTAs a mandatory part the BBA Program, all the students of the faculty of Business Studies, University of Dhaka have to undergo a three month long internship program with an objective of gaining practical knowledge about current business world. After this internship program each and every students have to submit an internship report mentioning their activities during the internship program.

Ive started my internship at the National Bank Limited, Foreign Exchange Branch, 19, Rajuk Avenue, Taranga Complex, Dhaka, on 9th August 2009. At the end of the program I am submitting my internship report focusing on the contribution of Foreign Exchange operation to the overall performance of bank especially on profitability perspective under the supervision of Aklima Chowdhury Lima, Lecturer, Department of Accounting and Information System, University of Dhaka.

1.2 OBJECTIVES OF THE STUDYThe general objective of the study is to gather practical knowledge regarding banking system and operation. The practical orientation gives us a chance to relate the four year long theoretical learning of BBA Program with the practical experience. This consists the following:

1. To get an overall idea about the Foreign exchange Business of National Bank Limited.1. To apply theoretical knowledge in the practical field. 1. To describe the organizational structure, management, background, functions and objectives of the bank and its contribution to the national economy.1. To achieve overall understanding of National Bank Limited.1. To analyze the financing systems of the bank to find out any contributing field.1. To examine the profitability and productivity of the bank. 1. To acquire knowledge about the everyday banking operation of National Bank Limited.1. To evaluate the effect of world recession on foreign exchange income of NBL, Foreign Exchange Branch. 1. To understand the real management situation and try to recommend for improving existing problems.

1.3 SCOPE OF THE STUDYThis study provides those scopes of knowing are the following:1. History and performance of National Bank Limited.1. Terms used in foreign exchange operations1. Foreign exchange operations of National Bank Limited1. Literature review.1. Total concept of Foreign Exchange Operation.

1.4 METHODOLOGY OF THE STUDY The report is prepared on the basic of foreign Exchange of National Bank Limited. To conduct the overall study, at first I explored the sources of Primary and Secondary information and data. Different files of the department and statement prepared by FED helped me to prepare this report. I have interviewed the NBL officials for getting more information. To present numerical data, I used the Annual Report of 2008 and monthly statement of January to October 2009 of National Bank Limited, Foreign Exchange Branch. For preparing this report I have used some graphical representation to find out different types of analytical and interpretation.

1.5 SOURCES OF DATAAs mentioned earlier, mainly primary and secondary data has been used. Sometimes the customers gave some important information regarding the services of the Bank:

1.5.1 PRIMARY DATA1. Official records of National Bank Limited (NBL).1. Face to face conversation with the client. 1. Expert opinion.1. Personal Interview Face-to-face conversation and in depth interview with the respective officers of the branch.1. Personal observation Observing the procedure of banking activities followed by each department.1. Daily diary1. Practical work exposures on different areas of the branch1. Informal conversation with the clients or customers

1.5.2 SECONDARY DATA1. Monthly Statement of NBL. 1. Annual Report of NBL. 1. Working Papers. 1. Official Files. 1. Selected books. 1. Other manual information.1. Websites.1. Various publications on the Bangladesh Bank.1. Newspaper reports in this concern.

1.5.3 DATA ANALYSIS AND INTERPRETATIONBoth quantitative and qualitative analysis will be performed on the findings. The quantitative analysis will be done on the trend of export- import, growth pattern of export-import, pre and post facilities provided for easing the export-import operations. Qualitative analyses will be based on the macroeconomic variables and foreign exchange policy provided by Bangladesh bank, the central bank of Bangladesh. Different statistical tools will be used for the analysis of the findings.

1.6 LIMITATIONS OF THE STUDYTo provide current information and to make the report read-worthy, support from various sources is essential. In spite of having my wholehearted effort, I could not collect some information required at the time of the study. So this study is not free from the following limitation: Due to unavailability of latest annual report (Annual report 2009), I have to prepare the report on the basis of annual report 2008. As a result, analysis, presentation of data may not show the existing position/present condition of National Bank Limited. For the whole internship I had only 90 days, out of which I get 61 days because of late commencement of internship program, which were totally insufficient. So I faced time shortage extremely. Lack of previous experience to prepare this type of report and it is totally new to me as an intern. Foreign exchange division follows Uniform Customs and Practice for Documentary Credits (UCPDC), but within this short period, I was totally stunned to understand. Learning all the banking functions within just two months was really difficult. Sometimes the officers of National Bank Limited were very busy. For this reason the personal did not co-operate me National Bank Limited did not give me any kind of monetary support for this internship program Most of the working days in NBL, I have to work in cash department to help in IPO subscription collection, so I get limited time work in other departments to have practical knowledge Another limitation of this report is Banks policy of not disclosing some data and information for obvious reason, which could be very much helpful.

CHAPTER-02BRIEF HITORY OF BANKING SECTOR OF BD

2.1 EVOLUTION OF THE WORD BANKThe word bank originated from Italian word Banca. Banca means long tool. In ancient time Italian Jews merchant used to do business of lending money by sitting on the tools.It is assumed that the word bank derived from the word Banca. To meet the expense of war of 1171 one type credit certificate was launched in Italy at an interest rate of 5% it was called as Monte in Italian language and Banke in German language then German language was widely used in Italy. As a result the word Banke gradually changed to the word Banca from which the word Bank originated.

2.2 THE EMERGENCE OF MODERN BANKINGThe linguistics and etymologists suggests an interesting story about banking origins. Both the old French word Banque and the Italian word Banca were used centuries ago to mean a bench or moneychangers table. This describes quite well what historians have observed concerning the first bankers, who lived more than 2000 years ago. They were money changers, situated usually at table or in a small shop in the commercial district, aiding travelers who came to town by exchanging foreign coins for local money or discounting commercial notes for a fee in order to supply merchants with working capital.The first bankers probably used their own capital to fund their activities, but it was not long before the idea of attracting deposit and securing temporary loans from wealthy customers became a source of bank funding. Loans were then made to merchants shippers and landowners at rates of interests low as 6 percent per annum to as high as 48 percent a month for the riskiest ventures. Most of the early bank was Greek in origin. The banking industry gradually spread outward from the classical civilizations of Greece and Rome into northern and western Europe. The early bank in Europe was places for safe keeping of valuable items (such as gold and silver bullion) as people came to fear loss of their asset due to war, theft, or expropriation by government. When colonies were established in North and South America, old world banking practice were transferred to the new world. 2.3 DEVELOPMENT OF BANKING IN BANGLADESHSince early British rule, the history of banking in Bangladesh territory shows that the traditional trade-networks developed before the banks invaded rural areas. And the banking services have slowly flourished in Bangladesh territory. Even today, in many places, moneylenders provide credit services. Small shopkeepers and businessman use informal credit at high interest rate. Traditional mahjongs money lending business gradually declined due to expansion of bank and the micro credit programs of NGOs, cooperative banks and government agencies.

2.4 PUBLIC SECTOR BANKSDuring the liberation war in 1971, the economic, political, and social system including the banking system was severally damaged. At that time, all big and medium financial institutions except two small banks had their head office in the West Pakistan. The non-beagle owners and managers of the financial establishments that operated in East Pakistan had abandoned them. After independence in 1971, the new government had to take over management and ownership of all such institutions. The banks Nationalization Order 1972 was issued to nationalize banks and financial institutions (except those incorporated abroad) in order to control chaos in the field of ownership, party bureaucracy, the intelligentsia, and pressure group. By several orders the government of Peoples Republic of Bangladesh created- Six nationalized commercial banks (NCBs):1. Sonali Bank2. Agrani Bank3. Janata Bank4. Rupali Bank5. Pubali Bank6. Uttra Bank One industrial bank (BSB) One agricultural bank(BKB) One industrial development financial institution(BSRS) The banks and financial institutions which originated during the Pakistan period and were merged, and renamed and functioning after independence of Bangladesh. In the year 1983, the government allowed private sector to participate in the banking business. The Publi Bank and the Uttara Bank were denationalized in 1985, due to non profitability. This action reduced the number of NCBs to four. Such restructuring of public sector banks was in order to play their role in industry, agriculture, export, self employment etc.

2.5 PRIVATE COMMERCIAL BANKSTaking advantage of the liberalization policy of the government regarding participation of private sector in the banking business, a number of private banks were established in and after 1983. With the emergence of private banks in Bangladesh, a competitive situation in the sector has been created. Now there are 48 commercial banks in Bangladesh which are enlisted with Bangladesh Bank, among them four (4) are NCBs, five (5) are specialized banks, twenty nine (29) are private commercial banks and ten (10) are foreign commercial banks. The emergence of private banks has added a new dimension to the banking system in Bangladesh. The private commercial banks show a steady growth in terms of number of branches, deposit and advances.

CHAPTER-03CORPORATE REVIEW OF NATIONAL BANK

3.1 History of National Bank Limited

National Bank Limited has its prosperous past, glorious present, prospective future and under processing projects and activities. Established as the first private sector Bank fully owned by Bangladeshi entrepreneurs, NBL has been flourishing as the largest private sector bank with the passage of time after facing many stress and strain. The member of the board of directors is creative businessman and international economist. For rendering all modern services, NBL, as a financial institution automated all its branches with computer network in accordance with the competitive commercial demand of time. Moreover, considering its forth- coming future the infrastructure of the Bank has been much more to NBL. Keeping the target in mind NBL has taken preparation branches by the wear 2000-2001.

The emergence of National Bank Limited in the private sector is an important event in the banking area of Bangladesh. When the national was in the grip of severe recession, Govt. took the farsighted decision to allow in the private sector to revive the economy of the country. Several dynamic entrepreneurs came forward for establishing a bank with a motto to revitalize the economy of the country.

National Bank Limited was born as the first hundred percent Bangladesh owned Bank in the private sector. From the very inception it is the firm determination of National Bank Limited to play a vital role in the national economy. We are determined to bring back the long forgotten taste of banking services and flavors. We want to serve each one promptly and with a sense of dedication and dignity.

The President of the Peoples Republic of Bangladesh Justice Ahsanuddin Chowdhury inaugurated the bank formally on March 28, 1983 but the first branch at 48, Dilkusha Commercial Area, Dhaka started functioning on March 23, 1983. The 2nd Branch was opened on 11th May 1983 at Khatungonj, Chittagong. Today we have total 103 Branches all over Bangladesh. A representative office was established in Yangon, Myanmar in October, 1996 by our bank and obtained permission from the government of Bangladesh to handle border trade with Myanmar .opportunities is being explored for further business avenues there.

Now NBL is on line to establish trade and communication with the prime international banking companies of the world. As a result NBL will be able to build a strong root in international banking horizon .Bank has been drawing arrangement with well conversant money transfer service agency Western union. It has full time arrangement for speedy transfer of money all over the world.

Banking is not only a profit oriented commercial institution but it has a public bas and social commitment admitting this true NBL is going on with its diversified banking activities NBL introduced monthly Savings Scheme, special Deposit Scheme, and Consumers.

Credit Scheme and savings Insurance scheme etc. To combine the people of lower and middle income group.A team of highly qualified and experiment professional headed by the managing Director of the bank who has vast banking experience operates bank and at the top three is an efficient Board of Directors for making policies.

3.2 Vision of National Bank LimitedEstablishing as a top grade efficient bank through best application of modern information technology and business activities, offering high standard client services and Proper coordination of foreign trade business in the core of their vision.

3.3 Mission of national bank LimitedWith a view to achieving commercial objective of the bank, their sincere and all out efforts stay put unabated. Respected client and shareholders are attracted to us for our transparency, accountability, social communities, and high quality of clientele services.

3.4 Objective of national Bank Limited Bring modern banking facilities to the doorsteps of general public through diversification of services, thereby arousing saving propensity among the people. Foreign a cordial, deep rooted and farm banker customer relationship by dispensing prompt and improved clientele services. Taking part in the development of the national economy through productive development of the banks resources as well as patronizing different social activities. Connecting clients to modern banking practices by the best application of improved information technology, so that they get encouraged to continue and feel proud of banking with NBL. Ensuring highest use of the professional workforce through enhancement of their attitude and competence. Responding to the need of the time by participating in the syndicated large loan financing with like-minded banks of the country, thereby expanding the area of investment Elevating the image of the bank at home and abroad by sustained expansion of its activities.

3.5 Strategies of National Bank Limited To manage and operate the bank in the most efficient manner to enhance financial performance and to control cost of fund. To strive for customer satisfaction through quality control and delivery of timely services. To identify customer credit and other banking needs and monitor their perception towards our performance in meeting those and update requirement. To review and update policies procedures and practices to enhance the ability to extend better services to customer. To train and develop all employs and provide them adequate resources so that customer needs can responsibility addressed. To promote organizational effectiveness by openly communicating company plans, policies, practices and procedures to all employers in a timely fashion To cultivate a working environment that fosters positive motivation for improved performance To diversify portfolio both in the retail and whole sale market. To increase direct contact with customer in order o cultivate a closer relationship

3.6 Business GoalTo patronize, sponsor and encouraged games and sports, entertainment and other socio-economic activities alongside providing the best services to the client.

3.7 The Future thrust Full duplex on-line Banking Introducing more innovative products and services Opening new branches Expansion of business network at home and abroad SMS Banking Introduction of new liability / Asset products

3.8 Corporate Culture

Employees of NBL share certain common values, which helps to create a NBL culture. The client comes first Search for professional excellence Openness to new ideas& new methods to encourage creativity Quick decision making Flexibility and prompt response A sense of professional ethics

3.9 Growth and Development of NBLThe NBL carries out all traditional functions, which a commercial bank performs such as mobilization of the deposit, investment of funds, financing export and import business, trade and commerce and industry.The banking sector in the country faced different problems thought the year. Even through the board and management never stopped its effort to maximize wealth, which is reflected by 143.97percent profit growth in 2007, highest ever in the last 15 years.The bank earned the 676.45 core revenue in 2007 as interest, income from investment and commission & exchange earning, which who Tk. 530:69 crore in the provision year. As a result the total operating profit rode to Tk. 221.51 crore in 2007 from Tk.114.68 crore in the previous year.

3.10 Branches of NBLNBL, which was started at Dilkusha Branch on March 23rd, 1983, was the first major commercial Bank. In Bangladesh operating throughout the country as well as the age of the bank is only 25 years .During this period it has established total 106 branches over the country and made smooth network inside the country as well as thought the world. The number of branches as well as territory wise is mentioned in the table.

Area wise branches

Division areaNumber of branches

Dhaka division39

Chittagong 24

Rajshahi division16

Khulna division 14

Sylhet division14

Table 01: Branches of NBL

3.11 Management Hierarchy of NBL

Managing director

Deputy managing director

Senior executive vice president

Executive vice president

Senior vice president

Vice president

Senior assistant vice president

Assistant vice president

Senior principle officer

Prince officer

Senior officer

Officer

Assistant officer

Junior officer

Figure 01: Management Hierarchy

CHAPTER-03Foreign Exchange

4.1 Meaning of Foreign ExchangeForeign Exchange means exchange foreign currency between two countries. If we consider Foreign Exchange as a subject, then it means all kind of transactions related to foreign currency. In other wards foreign exchange deals with foreign financial transactions.

H.E. Evitt defined Foreign Exchange as the means and methods by which rights to wealth expressed in terms of the currency of one country are converted into rights to wealth in terms of the currency of another country

4.2 REGULATORY REQUIREMENTS OF FOREIGN EXCHANGEAny import and export of our country is regulated by different local and international laws and regulatory bodies. The core guidelines under the preview of which import and export of our country have to be performed are: Import Policy Export Policy Guidelines for foreign exchange transaction of Bangladesh Bank (Volume 1 & 2). Circular issued by Bangladesh Bank Circular issued by NBR Circular issued by CCI&E UCPDC (ICC publication no.600) & ISBP, URC, URR. Public Notice Ministry of Commerce Circular Other Authorization (i.e. NBC Dept) Among the regulatory bodies, Chief Controller of Import and Export, Bangladesh Bank play major role in monitoring and ensuring compliance of various regulations

4.3 WHY Exchange is TO be controlled Foreign Exchange is to be controlled for the following reason: To stabilize the rate of exchange. To protect domestic Industries. For proper implementation of plans. To increases the bargaining strength. To check over invoicing & under invoicing. To check the black marketing and smuggling. For regulating the international movements of goods.4.4 FUNCTIONS OF FOREIGN EXCHANGE DEPT. Foreign Exchange is mainly combination of three parts: Foreign Remittance. Export. Import.

These three parts are most essential part of Foreign Exchange Operations of NBL at Foreign Exchange Branch as well as other AD branches. Not only NBL but also all banks of Bangladesh have to play these roles in Foreign Exchange Operation. I will discuss about these topics in later chapters.

4.5 Foreign Exchange condition of Nbl

4.5.1 Foreign Remittance

Year

2004

2005

2006

2007

2008

Foreign Remittance9035.5013618.2021353.9027560.8039877.80

Table 08: Foreign Remittance

In 2008, foreign remittance brought into the country through NBL was USD 582.47 million showing an increase of USD 179.90 million over the previous year, which registered an attractive growth of 45%. This growth was possible due to introduction of different instant payment products and technology including extending SWIFT, Online, EFT etc. and further efforts are being made for more speedy payments. Figure 06: Foreign Remittance

4.5.2 Import Year

2004

2005

2006

2007

2008

Import22020.3031648.2042458.506275.9078226.32

Table 09: Import

The bank opened a total number of 21,210 L/Cs amounting USD 1,130.96 million in trade in 2008 with a growth of 25 percent over the previous year. The main commodities were scrap vessels, rice, wheat, edible oil, capital machinery, petroleum products, fabrics & accessories and other consumer items.

Figure 07: Import4.5.3 Export

Year

2004

2005

2006

2007

2008

Export17105.3021344.1028019.2031824.0036284.44

Table 10: Export

The bank has been nursing the export finance with a special attention since its inspection. In 2008 it handled 16,234 export documents valuing USD531.03 million with a growth of 14 percent over the last year. Export finances were made mainly to readymade garments, knitwear, frozen food and fish, tanned readymade leather, handicraft, tea etc.

Figure 08: Export

CHAPTER-05DOCUMENTS USED IN FOREIGN EXCHANGE

5.1 LETTER OF CREDIT (L/C)It is the most important and commonly used in connection with foreign trade. Letter of Credit is an undertaking by a banker of the importer to the exporter, to the effect that the amount of the L/C will be duly paid. The banker on behalf of the importer issues the L/C in favor of the exporter (beneficiary) and forwards the same to the exporter to the effect that the bill drawn by him shall be duly accepted and paid. It creates confidence in the mind of the exporter so far as payment of the bill is concerned. It is also facilitate the exporter to get the benefit of discounting the bill before the date lf maturity.

5.2 BILL OF EXCHANGE A Bill of Exchange is an instrument in writing, containing an unconditional order, signed by the maker, directing a certain person to pay on demand or on fixed or determinable future time a certain sum of money only to or to the order of a certain person or to the bearer of the instrument. From the definition - we get the features of bill of exchange. In generally there are three parties like- Drawer: The person who prepare the bill; Drawee: The person who is ordered for the payment in future specified time; Payee: The person who is the amount of bill receiver as per the order of the drawer to the drawee.

5.3BILL OF LADINGA bill of lading is a document that is usually stipulated in a credit when the goods are dispatched by sea. It is evidence of a contract of carriage, is a receipt for the goods, and is a document of title to the goods. It also constitutes a document that is, or may be, needed to support an insurance claim. The detail on the bill of lading should include: A description of the goods in general terms not inconsistent with that in the credit. Identifying marks & numbers (if any). The name of the carrying vessel. Evidence that the goods have been loaded on broad. The ports of shipment & discharge. The names of shipper, consignee and name & address of notifying party. The number of original bills of lading issued. The date of issuance.

A bill of lading specifically stating that goods are loaded for ultimate destination specifically mentioned in the credit.

5.4 COMMERCIAL INVOICEA commercial invoice is the accounting document by which the seller charges the goods to the buyer. A commercial invoice normally including the following information: Date Name & address of buyer & seller. Order or contract number, quantity & description of the goods, unit price and the total price. Weight of the goods, number of packages and shipping marks & number. Terms of delivery & payment. Shipment details.

5.5 CERTIFICATE OF ORIGIN OF GOODSA certificate of origin is a signed statement providing evidence of the origin of the goods.

5.6 INSPECTION CERTIFICATE This is usually issued by an independent inspection company located in the exporting country certifying or describing the quality, specification or other aspects of the goods, as called for in the contract and / or the letter of credit. The buyer who also indicates the type of inspection usually nominates the inspection company he /she wish the company to undertake.

5.7 INSURANCE POLICY OR CERTIFICATE The insurance certificate document must. Be that specified in the credit. Cover the risks specified in the credit. Be consistent with the other documents in its identification of the voyage and description of the goods. Unless otherwise specified in the credit:

Be a document issued and / or signed by an insurance company or its agent, or by underwriters. Be dated on or before the date of shipment as evidenced by the shipping documents or establish that cover is effective at the latest from such date of shipment. Be for an amount at least equal to the GIF value of the goods and in the currency of the credit.

5.8 PROFORMA INVOICE OR INDENTSeller's quotation or agreement between seller & buyer. In this-the seller declared the rate, quantity, quality, manufacturing & other information about goods and that accepted by buyer. .5.9 G.S.P. CERTIFICATE (GENERALIZED SYSTEM OF PREFERENCE)When tariff concession is sought from those developed countries providing preferential treatment to exporters of the developing countries, a GSP certificate should be obtained from the EPB. In GSP scheme the tariff providing country is payer country & tariff consumer or receiver country is receiver country. Up to the period there are 16 developing countries under this scheme facility. From Bangladesh export development burro the industrialists may get necessary information & practical procedure.

5.10 PACKING LISTHere the detailed descriptions of goods packed in cases are written. Such as total quantity in lot, per packet, total weight of the shipment, per packet etc are written.

5.11 DOCUMENTARY CREDIT In simple terms a documentary credit is conditional bank undertaking of payment. Expressed more fully, it is written undertaking by a bank (Issuing Bank) given to the seller (Beneficiary) at the request and in accordance with the instructions of the buyer (applicant) to effect payment (i.e. by making a payment or by accepting or negotiating bills of exchange) up to a stated sum of money, within a prescribed time limit & against stipulated documents. These stipulated documents are likely to include those required those required for commercial invoice, certificate of origin, insurance policy or certificate and bill of lading or combined transport document.There are various types of documentary credits. A revocable credit can be amended or cancelled at any time without prior warning or notification to the seller.An irrevocable credit can be amended or cancelled only with the agreement of all parties. As there are often two banks involved the issuing bank & the advising bank, the buyer can ask or an irrevocable credit to be confirmed by the advising bank. If the advising bank agrees, the irrevocable credit becomes a confirmed irrevocable credit.

There are four types of documentary credits according to payment methods: Sight credit Acceptance credit Cash credit Deferred payment credit

Documentary letter of credit

The documentary Letter of Credit is an arrangement whereby a bank (issuing bank) acting at the request of a customer (applicant of the Letter of Credit): To make payment to or to the order of other person (the beneficiary) or to pay accept or negotiate Bill of Exchange (Drafts) drawn by the beneficiary. Authorizes such payment to be made or such drafts to be paid, accepted or negotiated by another bank against stipulated documents, provided the terms & conditions of the Letter of Credit are complied with.

Procedure of documentary credit:

Details of the diagram: The buyer & the seller conclude a sales contract providing for payment by documentary credit. The buyer instructs his / her bank i.e. issuing bank to issue a credit in favor of the seller i.e. beneficiary. The issuing bank asks another bank, usually in the country of the seller, to advice or confirms the credit. The advising or confirming bank informs the seller that the credit has been issued. As early as possible the seller receives the credit & is satisfied that he / she can meet its terms and conditions, he / she is in a position to load the goods and dispatch them. The seller then sends the documents evidencing the shipment to the bank where the credit is available in bank. This may be the issuing bank, or the confirming bank, or any bank named in the credit as the paying, accepting or negotiating bank, or it may be the advising bank or any bank willing to negotiate under the credit. The bank checks the documents against the credit. If the documents met the requirements of the credit, the bank will pay, accept, or negotiate according to the terms of the credit. In case of a credit available by negotiation, the issuing bank or the confirming bank will negotiate without recourse. Any other bank including the advising bank if it has not confirmed the credit, may negotiate, same for payment. The bank if other than the issuing bank sends the documents to the issuing bank The issuing bank checks the documents and if they meet the credit requirements, either Effects payment in according with the terms of the credit, either to the seller if he / she has sent the documents directly to the issuing bank or to the bank that has made funds available to him in anticipation. Or Reimburses in the pre-agreed manner the confirming bank or any bank that has paid, accepted or negotiated under the credit. When the documents have been checked by the issuing bank and found to meet the credit requirements, they are released to the buyer upon payment of the amount due, or upon other terms agreed between him / her & the issuing bank. The buyer sends the transport document to the carrier who will then proceed to deliver the goods.

CHAPTER-06LETTER OF CREDIT (L/C)

Letter of Credit is an undertaking by a banker of the importer to the exporter, to the effect that the amount of the L/C will be duly paid. The banker on behalf of the importer issues the L/C in favor of the exporter (beneficiary) and forwards the same to the exporter to the effect that the bill drawn by him shall be duly accepted and paid. It creates confidence in the mind of the exporter so far as payment of the bill is concerned. It is also facilitate the exporter to get the benefit of discounting the bill before the date lf maturity.

6.1 PARTIES OF LETTER OF CREDIT TRANSACTION Issuing Bank: It is the buyer's bank. The bank that agrees to the request of the applicant and issues its letter of credit in terms of the instructions of the applicant. Advising Bank: It is the seller's or beneficiary's Bank. The bank usually situated in the seller's or beneficiary's country (most of the time with which there exists corresponding relationship with the buyer or issuing bank), request to advice the credit to the beneficiary. Confirming Bank: Sometimes issuing bank request advising bank or another bank to add confirmation to the letter of credit. When that bank do this then such bank is called confirming bank. So advising bank can be act as confirming bank.

Issuing Bank(Bangladesh)

Advising Bank (India)

ReimbursingBank(Japan)

Negotiating Bank (India)

Reimbursing Bank: This is the bank that is nominated by the issuing bank to pay (it is also known as paying bank) or to accept drafts. It can be situated in another country. In this connection it is to say that American Express Bank & Nat West Bank act as reimbursing bank in case of National Bank Limited. The account, which maintains National Bank Limited with Nat West Bank & American Express Bank, is called "Nostro Account" and in rivers the account, which is maintained by Nat West Bank & American Express Bank with National Bank Limited, is called "Vostro Account" Negotiating Bank: The bank, which makes payment to the exporter after scrutiny, the documents submitted by the exporter with the original letter of credit then it is called Negotiating Bank. Nominated Bank: The bank that is nominated by the issuing bank to pay (nominated bank is known as paying bank) or to accept drafts (nominated bank is known as accepting bank) or to negotiate (nominated bank is known as negotiating bank). Usually the advising bank is request & authorized to be the nominated bank unless the credit allows negotiation by any bank. Seller: Beneficiary of the letter of credit is seller.

6.2 BASIC FORMS OF DOCUMENTARY LETTER OF CREDIT

The letter of credit can be either revocable or irrevocable. It needs to be clearly indicated whether the letter of credit Revocable or Irrevocable. When there is no indication then the letter of credit will be deemed to be a revocable L.C. The details are as follows:

Revocable letter of credit: A revocable credit is one, which can be amended or cancelled by the issuing bank. At any moment without "prior notice" to the beneficiary. So this is clear that revocable credit can be revoked any time without prior notice. Irrevocable letter of credit: An irrevocable credit is one, which cannot be cancelled or amendment able any time without the consent of each party. Through this letter of credit the issuing bank gives a definite, absolute and irrevocable undertaking to honor its obligations, provided the beneficiary complies with all the terms & conditions of the credit. Government letter of credit: That letter of credits, which are done by the Defense Ministry and other Ministries of the government. Master or mother letter of credit: The L.C. which come from outside the country to the exporter from importer that is mother or master letter of credit.

Other classes of letter of credit:

Revolving letter of credit: When the L.C. is used again & again in same amount for a specific period of time that is called revolving letter of credit. Transferable letter of credit: Exporter can transfer his / her right of letter of credit in full or partly to a third party. In generally, the exporter is not the supplier but act as a middleman with in the supplier & importer. Back-to-Back letter of credit: The letter of credit, which done by the security of mother letter of credit. Clean or open letter of credit: The letter of credit, which provides assurance of payment bill of exchange without submission, of any export documents that is called clean letter of credit. Confirmed letter of credit: When the Irrevocable letter of credit issued by issuing bank to the exporter as assurance of the L.C., then as per advice or documents the authorized representative or representative bank's provide assurance or payment guarantee that is confirmed letter of credit. At sight letter of credit: That letter of credit which expires ninety days i.e. within this period the documents must be sending to the negotiating bank. Deferred payment letter of credit: That letter of credit which expires one hundred & eighty days i.e. within this period the documents must be send to the negotiating bank. Contract letter of credit. Refinance Letter of Credit. Marginal Letter of Credit. Traveler's Letter of Credit.

6.3 CLASSIFICATION OF LETTER OF CREDIT AS PER FUNCTION: LC under cash LC under loan LC under grant LC under wage Back to back LC.

6.4 STEPS IN LETTER OF CREDIT OPENINGOn receiving the documents or papers from the importer the letter of credit opening bank is to perform the following functions in connection with opening the letter of credit:

A. To scrutinize the documents thoroughly and to consult with import policy, Bangladesh Bank & International Division's circular.B. To prepare an "offering sheet". This offering sheet is nothing but a prescribed office note on which the branch manager will sanction the margin to be obtained from the importer.C. Commission of letter of credit to be calculated as 50% of the total amount, equivalent to Bangladesh currency.D. P&T charges to be realized for TK. 100 (fixed charge) if the letter of credit dispatched through Airmail. If it is a cable or telex letter of credit the P&T charges to be realized at actual.E. Foreign correspondents adjusting charges (FCC) to be realized TK. 1500 (Fixed amount).F. To make entry in "letter of credit opening register".G. Accounting treatment to prepare vouchers in prescribed forms: Bank's charges voucher Importer's Current Account... .................. .....Dr. Foreign correspondents charges adjusting A/C.... Cr. P & T charges recovered A/C... ..................... Cr. Commission Account... ........................... ....Cr.

Margin voucher Importer's current Account........................... Dr. Marginal Deposit A/C (against import L/C)............ Cr. Liability voucher Liability of constituents for acceptance A/C........Dr. (For opening letter of credit) Acceptance for constituents A/C..................... Cr. (For opening letter of credit)

H. To dispatch the letter of credit as follows: First & second copy - Advising Bank, which in turn forward the original copy to the exporter. Third copy - Reimbursing Bank. Fourth & Fifth copyImporter Sixth copyC.C.I. & E. Seventh to Ninth copyLetter of credit opening bank's copy.

6.5 REQUIRED DOCUMENTS FOR LETTER OF CREDIT OPENING

Proposal letter (in proposal letter it must be mentioned that - price of goods, CCI & E registration, pass book number, LCA form dully filled in signed & sealed, Import form full set, insurance policy & addendum, P.I. number). Application and agreement for irrevocable LC with adhesive stamp of TK.150. Import license HS. Code. TIN. VAT registration. Indenting certificate. Performa invoice - two copies (with in this it indicate - Performa bill no. & date, item, particulars, quality, quantity, rate, and amount of goods, total invoice value (E &O.E.) LCA (Letter of Credit Authorization) form for industrial consumer - four copies. (Within this - IRC number, total amount) Signature of Director of the firm and manager of National Bank Limited. IMP form - Four copies (by this the declaration of the firm's directors) Money receipts of insurance policy. After preparing the procedure the bank provide offer in prescribed "offering sheet". Approval certificate of Bangladesh Bank on behalf of the importer.

6.6 PARTICULARS INVOLVED IN OFFERING SHEET

Name of the party, Sanctioned limit, Facility applied for letter of credit (amount & previous outstanding). Forward exchange Foreign bills purchased. Guarantees. Trust receipts. Clean packing credits. Advance against imported goods. Goods particulars Import license Margin already at credit. Margin to be obtained. Guaranteed by. Balance of current account. Average Balance of bank account. Net worth of the firm. Customs duty. Country of export. Other conditions.

6.7 JUSTIFICATION FOR FITNESS OF LETTER OF CREDIT OPENING Application from importer. Bio-data of the applicant. Current account opened by the applicant in the branch. Supplier's acceptance & rate of goods. Is it a brand item or not? Contract on prescribed form of bank (stamp TK. 150). Performa invoice from supplier.

6.8 Method of settlementBased on the method of settlement the documentary letters of credit can be opened in two ways; Sight letter of creditA Sight letter of credit is a credit in which the seller obtains payment upon presentation of documents in compliance with the terms and condition. Deferred letter of creditA Deferred letter of credit is a credit in which the seller will be paid a fixed or determinable future time. The buyer is obligated to pay the face amount at maturity.

6.9 Operation of Documentary Letter of CreditThe following five (5) major steps are involved in the Operation of Documentary Letter of Credit Issuing, Advising, Amendment(if necessary) Presentation Settlement.

ISSUING A LETTER OF CREDITBefore issuing a L/C, the buyer and seller located in different countries, concludes a sales contract providing for payment by documentary credit. As per requirement of the seller, the buyer then instruct the bank - the issuing bank to issue a credit in favour of the seller(beneficiary). The credit application which contains the full details of the proposed credit, also serve as an agreement between the bank and the buyer. After being convinced about the necessary conditions contained in the application form and sufficient conditions to be fulfilled by a buyer for opening a credit, the opening bank then proceeds for opening the credit to be addressed to the beneficiary.

ADVISING A LETTER OF CREDITAdvising through a bank is a proof of apparent authenticity of the credit to the seller. The process of advising a credit consists of forwarding the original credit to the beneficiary to whom it is addressed. Before forwarding, the advising bank has to verify the signature (s) of the officer (s) of the opening bank and ensure that the terms and conditions of the credit are not in violation of the existing exchange control regulations and other regulation relating to export.

AMENDMENT OF L/CParties involve in a particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reasons. In such a situation, the credit should be amended. Amendment of L/C may be for-

Time Extension:The time duration of L/C can be extended by writing an application by the opener of L/C and signature of the opener should be verified provided the LCA is valid or the agreement is valid up to that period.

Change in L/C amount: Increase of L/C amount may be done provided that the LCA covers the increase in amount. L/C amount can be decreased provided the relevant contract or indent is amended accordingly and with the consent of beneficiary. For increasing the amount of L/C the following accounting procedure will be passed:Debit: Acceptance for Constituent LiabilityCredit: Constituent liability for acceptance

PRESENTATION OF DOCUMENTS The seller being satisfied with the terms and conditions of the credit proceeds to dispatch the required goods to the buyer and after that, has to present the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. After receiving all documents, the negotiating bank then checks the documents against the credit. If the documents are founded in order, the bank will pay, accept or negotiate to the issuing bank. The issuing bank also checks the documents and if they are found as per credit requirements, either Effects payment, or Reimburses in the pre-agreed manner.

SETTLEMENTSettlement means fulfilling the commitment of issuing bank in regard to effecting payment subject to satisfying the credit terms fully. This settlement may be done under three separate arrangements as stipulated in the credit, these are

1. Settlement by paymentHere the seller presents the document to the paying bank and the bank then scrutinizes the documents, if satisfied the paying bank makes payment to the beneficiary and in case this bank is other than the issuing bank, then send the documents to the issuing bank. If the issuing bank is satisfied with the requirements, payment is obtained by the paying bank from the issuing bank.2. Settlement by AcceptanceUnder this arrangement, the seller submits the documents evidencing the shipment to the accepting bank accompanied by the draft drown on the bank at the specified tenor. After being satisfied with the documents, the bank accepts the documents and the draft and if it is a bank other than the issuing bank, then sends the documents to the issuing bank stating that it has accepted the draft and at maturity the reimbursement will be obtained in the pre-agreed manner.3. Settlement by NegotiationThis settlement procedure starts with the submission of document by the seller to the negotiating bank accompanied by a draft drown on the buyer or any other drawee, at` sight or at a tenor, as specified in the credit. After scrutinizing that the documents meet the credit requirements, the bank may negotiate the draft, this bank, if than the issuing bank, and then send the documents and the draft to the issuing bank. As` usual, reimbursement will be obtained in the pre-agreed manner.

6.10 When using letters of credit, be aware of the following

A letter of credit is about documents and not goods. It will not insure the quality of the goods received. It is important to understand all required documents before signing and it is also important to be sure all stipulated conditions can be met. Ensure time frames can be met since the inability to meet time schedules is the number one reason letters of credit fail. The failure to produce the required documentation on time can nullify the letter of credit. Even minor errors in documentation such as spelling mistakes can render a letter of credit invalid, so it is critical to be careful with the documentation.A letter of credit is not an absolute guarantee the beneficiary will receive payment. The issuing bank is obligated to pay under the letter of credit only when the stipulated documents are presented, and all the terms and conditions of the letter of credit have been met to the bank's satisfaction.

6.11 How Letters of Credit WorkA letter of credit is a promise to pay. Banks issue letters of credit as a way to ensure sellers that they will get paid as long as they do what they've agreed to do. Letters of credit are common in international trade because the bank acts as an uninterested party between buyer and seller. A documentary letter of credit is opened by the purchaser's local bank (the credit-opening bank). Via the credit-transmitting bank, the documentary letter of credit reaches the vendor. It checks whether the terms of the documentary letter of credit match the terms of your commercial contract. Only if the vendor is convinced can he send the goods to the purchaser. The necessary documents (invoice, transport document, insurance documents) are handed over by the vendor to the credit-transmitting bank. After checking these documents, the credit-transmitting bank pays the sum that the purchaser owes to the vendor directly. The credit-transmitting bank sends the documents to the credit-opening bank that, after checking the documents in turn, pays the amount due to the credit-transmitting bank. Via the credit-opening bank, the documents finally reach the purchaser, who can use these documents to collect the shipped goods. Finally, the buyer pays the amount owed to the local bank.

1. International sale contract

Importer or ApplicantIssuing BankAdvising Bank or confirming BankExporter or Beneficiary2. Applicant for LC issue3. Issue of LC4. Advising of LCPayment against documents to beneficiary7. Send document to issuing bank6. Taking up documents and payment5. Shipment of goods and presenting documents9. Receipt of goods Figure 14: The processing of Letter of Credit

6.12 Presenting a Letter Of CreditOnce a letter of credit has been received, it needs to present to the bank for payment along with other documents which may include: Commercial invoice Consular invoice Insurance documents Bill of lading Certificate of origin Packing list Inspection certificates Import permits The bank will not pay if there are discrepancies and the documentation is not in order.

6.13 Common Mistakes Made With Letters Of Credit

Exporters make the following common mistakes, which cause them to lose the sale or not get paid. Presenting documents late, after the letter of credit has expired. Shipping their goods after the specified date. Making a partial shipment when partial shipment is not allowed. Not presenting the proper documents. Not legalizing the documents. Not obtaining required insurance. Submitting copies instead of originals. Spelling mistakes. Mathematical mistakes.

CHAPTER-07 Import

7.1 Meaning of ImportAn import is any good or service brought into a country from another country in a fair and acceptable fashion, typically for use in trade. Imported goods or services introduce domestic consumers to newer things by foreign producers. Companies usually import goods and services to supply to the domestic market at a cheaper price and provide goods that are superior compared to goods manufactured in the domestic market.

7.2 Who is an Importer?The person who deals in import business obtaining import Registration Certificate (IRC) in terms of importers, exporters and indenters (registration) order-1981 from the CCI&E submitting the following papers is treated as importer. 1. Valid Trade License 2. National ID Card 3. Asset Certificate 4. VAT Registration Certificate 5. Bank solvency Certificate 6. Trade Association Certificate 7. Certificate of Incorporation 8. Memorandum and Articles of Association

7.3 Types of Import There are two types of import 1. Commercial Import2. Industrial import 1. Commercial Import:Importer does commercial import only for trading purpose. These products are finished goods. Such as rice, wheat, soybean oil etc.

2. Industrial import:Importer does industrial import for industrial use only. These products are raw materials and capital machinery. Such as; raw cotton, Crude oil etc.

7.4 Goods are not importableThe following types of goods are not importable-

Books, Newspaper, periodicals, documents and other papers, posters photographs, films, gramophone records, audio and video cassette tapes etc containing matters likely to outrange the religious feeling and beliefs of any class of the citizen of Bangladesh. Unless otherwise specified in this order, old, second-hand and recondition goods, factory reject add goods of job-lot or stock-lot of secondary or sub-standard quality. Maps, chart and geographical globes which indicate the territory of Bangladesh but do not do so in accordance with the maps published by the department of survey, Government of the peoples republic of Bangladesh. Horror comics, obscene and subversive literature including such pamphlets, posters, newspaper, periodicals, photographs, films, gramophone records, audio and video cassette tapes etc. Reconditioned office equipment, photocopier, type-writer machine, telex, phone, computer and fax. Unless or otherwise specified in this order, all kinds of waste. Goods hearing any words or inscriptions of a religious connotation the use or disposal of which may injure the religious feelings and beliefs of any class of the citizen of Bangladesh. Goods bearing any obscene picture, writing inscription or visible representation.

7.5 General Provisions for ImportBangladesh import policy order 2006-2009 places control on the importation of some specific products. The import of a number of products is the sole reserve of nominated government trading organizations. The import regime consists of; A banned list: Unless otherwise specified the items banned for import in this list shall not be importable.

A restricted list: Items which are importable on fulfillment of certain conditions specified in the list shall be importable on fulfillment of certain conditions.

Freely importable items: Unless otherwise specified, any item, which does not appear either in the restricted list or which has been mentioned as importable subject to certain condition shall be freely importable.

7.6 Import Procedure (Steps involved in dealing with L/C)

Procurement of IRC from the concerned authority. Signing purchase contract with the seller Requesting the concerned bank importers bank/ issuing bank to open L/C on behalf of importer favoring the exporter/ seller/ beneficiary. The issuing bank open/ issue the L/C in accordance with the instruction/ request of the importer and request other bank (advising Bank) located in sellers/ exporter to advise the L/C to the beneficiary. The issuing bank may also request the advising Bank to confirm the credit, if necessary. The Advising Bank advises/ inform the seller that the L/C has been issued. As soon as the exporter/ seller receive the L/C and is satisfied that he can meet the L/C terms and conditions; he is in a position to make shipment of the goods. After making shipment of goods in favour of the importer the exporter/ seller submit the document to the negotiating bank for negotiation. The negotiation Bank scrutinized the documents and if found ok negotiates the documents and sends the documents to the L/C issuing Bank. After receiving the documents the L/C issuing bank also examines the documents and if found ok makes payment to the negotiating bank. The L/C opening bank then requests the importer to receive the document on payments. The importer after paying all dues receives the documents from the L/C issuing bank and then releases the importer goods from the port authority.

7.7 Documents need to open a cash L/CTo open cash LC NBL wants some documents from importer. These are given below Valid IRC Valid Trade license TIN Certificate VAT Certificate Up to date income tax certificate CIB (Credit Information Bureau) report Pro-forma invoice Application (in importer pad) Credit report Fill up IMP form LC authorized form Insurance cover etc.

7.8 Procedure to be followed by banks for acceptance/issuance of LCA Forms

(1)Acceptance of LCA Forms by the nominated banks:a. LCA Forms and other relevant papers shall be submitted by the recognized industrial units to the private sector and registered commercial importers to their respective nominated bank for the purpose of import by opening L/C.b. While accepting LCA Forms from a private sector importer the nominated banks shall ensure that the concerned importer has a valid Import Registration Certificate (IRC). Unless a private sector importer specifically is exempted from IRC, LCA Forms shall not be accepted from him/her, or L/C shall not be opened in his/her favour without valid and legally renewed IRC.c. L/C for import of capital machinery and initial spares for setting up a new industrial unit may, however, is opened without any Import Registration Certificate (IRC) and without obtaining exemption certificate from the Chief Controller. No formal sanction shall be necessary from the sponsoring authority for such import against cash foreign exchange in respect of industrial units in the free sector.

(2) Compulsory recording of ITC Number Bank shall not process any LCA Form or open L/C without properly recording the appropriate ITC Number on the LCA Form or L/C. Bangladesh Bank shall monitor the compliance by the banks of the above requirements.

(3) Registration of LCA Form and opening of L/C In case of import under cash foreign commodity aid, grant, loan and other sources for which registration with Bangladesh Bank is necessary, the nominated bank shall forward the L/C Authorization Form in quintuplicate to the nominated bank concerned and third and the fourth copies thereof to the nominated bank concerned and third and the fourth copies thereof to the concerned Import Control Authority with in fifteen days for record.

(4) LCA Forms under cash foreign exchange In case of import under cash foreign exchange L/C Authorization Forms shall be required to be registered with the Bangladesh Bank duty in those instances where prior approval from the Bangladesh Bank is required for buying foreign exchange.

(5) Transmission of the copy of L/C and copy of amendment if any for record of the Import Control Authority within fifteen days.

7.9 Various Method of Import FinancingThere is various method of Import Financing which is regulated by legal framework and import policy. These are Non-Funded Financing Post import (funded) Financing

Non-Funded Financing:Letter of Credit constitutes the most important Non-Funded Financing in import trade. There are a very common form of import financing because they provide a high degree of protection for both buyer and seller.

Post import (funded) Financing:

There are major three forms of funded post import financing offered by the banks.These are given below-I. Payment Against Documents (PAD)II. Loan Against Imported Merchandise (LIM)III. Loan Against Trust Receipt (LTR)

I. Payment Against Documents (PAD): Payment made by the bank against lodgment of shipping documents of goods imported through letter of credit falls under this types. When importer bank finds documents in order and if there is any discrepancies have which is acceptable by the importer, import bill have to give to foreign bank or exporter bank. Payments have to give within 5 working days. Importer bank inform to the importer about arrival of documents. Importer must give payments within 21 days otherwise importer have to give interest to the bank on that amount. PAD generally used when L/C is at sight.When payment is given by National Bank Ltd, the following entry given

PAD A/C ----------- DrNostro A/C -------------------Cr

But when party gives payment to National Bank, the following entry given

Party/Applicant A/C ----------- Dr PAD A/C -------------------Cr

II. Loan against Imported Merchandise (LIM):This is funded credit facility allowed for retirement of shipping documents and release of goods imported through L/C taking effect control over the goods by pledge in godowns under banks lock and key. This is a temporary advance connected with import which is known as post-import finance and falls under the category Commercial Lending.When the importer are unable to retire the import bills from their own sources and approach to issuing bank for clearance of goods under LIM account, the bank examine the proposal and evaluate the credit worthiness of the applicant considering all relevant aspects and may sanction LIM for a very short period on the basis banker-customer relationship.

III. Loan against Trust Receipt (LTR):National Bank keeps security (such as- land, Building etc) against LTR. Party can repay LTR amount partly. National Bank maintains a different ledger account for LTR in which several information have such as date, particular, debit and credit amount, initial, product name, interest amount, loan A/C no, interest rate, mode of payment, expiry date and margin etc. LTR interest rate varies party to party. Generally National Bank uses 13% to 15% interest rate. LTR validity date may be 30 days/ 60 days/ 120 days which depends on sanction of NBL head office.

LTR interest rate = DaysBalanceRate of interest / 360 days

7.10 Instructions Issued by Bangladesh Bank for Opening and Operation of Letter of Credit for Import of Goods All Letter of Credits and similar undertakings covering imports into Bangladesh must be documentary Letter of Credits and should provide for payment to be made against full sets of onboard (shipped) transport documents (BL, AIB, TR etc.) showing dispatch of goods covered by Credit to a destination in Bangladesh; Authorized Dealer is allowed to open divisible, transferable Letter of Credits for import into Bangladesh under cash LCAF (Letter of Authorization Form); It is not permissible to open Letter of Credits in favor of beneficiaries in countries from which import into are banned by the component authority; The full description of goods to be imported along with unit price and quantity to be given in the Letter of Credit; Confidential report of the exporter to be obtained by the AD himself where the amount of Letter of Credit exceeds TK. 2,00,000 in case of import against proforma invoices issued direct by foreign supplier and TK. 5,00,000 against indent issued by local agents of the suppliers; Payments against discrepant documents may be made after the goods have been cleared from the customs on the basis of the locative LCAF; Advanced remittance against import may be made after getting prior permission from Bangladesh Bank where the goods are of specialized or capital nature.7.11 Preparation of Proposal and submitting it to the Competent Authority for Obtaining Permission of Opening Letter Of Credit

Before opening Letter of Credit the applicant must take permission from the competent authority. Whether the authority has to be taken form the Branch or from the Head Office of NBL depends on the amount of Letter of Credit and the percentage of margin. A proposal for obtaining permission for opening Letter of Credit generally contains the following points: Name and address of the importer; Name and address of the Guarantor if any; Particular of Merchandise to be imported along with name of the item Harmonized System (H.S.) Code, country of origin, quantity, unit price and purpose of import. Particulars/ Terms of LC along with name and address of the beneficiary, tenor of payment, port of loading and discharge, shipment validity and expiry date etc.; Landed cost of the goods; Market price of the goods at Dhaka and Chittagong (if applicable); Name of the previous banker with outstanding liability (if any); Number of CD accounts and transaction performance through this account; Present liability position with the bank; Present liability position of allied/sister concerns with the bank Letter of Credit performance of the party during the year/previous year; 7.12 Documents Receipt and Scrutiny

After opening the Letter of Credit the next step would be to await shipment followed by negotiation of documents by a bank abroad. The beneficiary of the Letter of Credit (supplier), after effecting shipment of the goods as per Letter of Credit terms, prepare or collect necessary documents as required under the terms of Letter of Credit and presents the drafts to the negotiating bank along with the supporting documents for negotiation. However, generally the following documents are asked to send:

Bill of lading or Airway Bill or other evidence of shipment (e.g. Railway Receipt, Truck Receipt, Barge Receipt) Certificate of Origin; Commercial Invoice; Draft or bill of exchange; Inspection of Survey Certificate; Marine Insurance Policy; Packing List; Quality Control Certificate. 7.13 Import Portfolio of National Bank Ltd

Import portfolio consists of the goods or items are being imported through the bank, total letter of credit opened by the bank, volume of goods etc. National Bank open a total number of 21,210 L/Cs amounting USD 1,130.96 million in import trade in 2008 with a growth of 25 percent over the previous year.

7.13.1 Import state of affairs of Nbl

Loan against Trust (LTR):

Year

2006

2007

2008

LTR (Interest)113514180.0096724946.0083737000

Table 15: LTR (interest)

From the data we can saw that, in the year of 2006 foreign exchange branch of NBL get interest income from LTR Tk 11, 35, 14,180 million which was higher than last two year. In the year of 2007 LTR interest was Tk 9, 67, 24,946 million which was higher than the year 2008. The LTR interest position was lowest than previous two year.

Figure 15: LTR (interest)

PAD (Interest):Year

2006

2007

2008

PAD (Interest)6376776.716172881.0012232000

Table 16: PAD (Interest)

From the data we can saw that, in the year of 2006 foreign exchange branch of NBL get interest income from PAD Tk. 63, 76,776.71million which was higher than the year of 2007year. From the above data we can also saw that in the year of 2006 this branch earn from PAD interest was increase and it was decreased year of 2007 but this amount again increased in the year of 2008 which was Tk 1,22,32,000 million.

Figure 16: PAD (Interest) L/C commission (Cash):

Year

2006

2007

2008

L/C commission (Cash)7532859.0011012310.0013008000

Table 17:L/C commission (Cash)

From the data we can saw that, in the year of 2006 foreign exchange branch of NBL get interest income from L/C commission Tk. 75, 32,859 million which was lower than the last two year. Bit in the year of 2007 the amount of L/C commission was increased which was tk1, 10, 12,310 million. And in the year of 2008 this amount become grew mostly which was Tk. 1, 30, 08, 000 million.

Figure 17: L/C commission (Cash) CHAPTER-08 Export

8.1 What is Export?

A good or service that is produced in one country and then sold to and consumed in another country. Because many companies are heavily dependent on exports for sales, any factors such as government policies or exchange rates that affect exports can have significant impact on corporate profits. A good produced in one country and sold to a customer in another country. Exports bring money into the producing country; for that reason, many economists believe that a nation's proper balance of trade means more exports are sold than imports bought. Exports may be difficult to sell in some countries, as the importers may put up various protectionist measures such as import quotas and tariffs. Most governments seek to promote exports, while they have differing positions on imports.

Currently Bangladeshs export trading depends on two products -75 percent Readymade Garments and 6 percent frozen food. Government of Bangladesh gives many facilities for the exporters. Such as- Income tax exemption for export earning: Under the income tax law other than the owners of factories not registered in Bangladeshi, all exporters will get 50% exemptions in their income taxes. Exemption in insurance premium. Bond facilities for export oriented industries. Facilities for duty free import of capital machineries for export - oriented industries. The export-oriented industries will get the advantage of importing 10 percent spare parts of their capital machineries without duty in every two years. Providing alternative facilities to export-oriented local textiles and RMG other than duty-bond or duty-draw-back. Tax holiday. Duty-draw-back scheme. 8.2 Documents used in Export When a firm sells its goods abroad, it must arrange for each export shipment to be accompanied by various documents. Depending on the country to which the goods are being sent, these documents will vary. But for exporting we can divide those documents in two types.

a) Substantive Documentsb) Auxiliary Documents

a) Substantive Document: Substantive Documents are given below-

i. Draft or bill of exchange:

Bill of Exchange is an instrument in writing containing an unconditional order or at a fixed determinable future time a certain sum of money only to, or to the order of a certain person or to the bearer of the instrument.

ii. Commercial Invoice:

Commercial Invoice is the export firm's invoice, addressed to the foreign importer describing the goods shipped and the total price that it must pay. However, some countries require the commercial invoice to be prepared on their own forms. Such forms are called customs invoices.

iii. Bill of lading or Airway Bill:

Bill of Lading is a document supplied to the exporter by the shipping company that is transporting the goods to their foreign destination, listing, item by item, the goods being shipped. It serves three basic purposes:

a. To acknowledge receipt by the carrier of the exporter's goods. b. To indicate the carrier's contractual obligation to transport the goods to their destination in exchange for payment.c. To record transfer of title from the seller to the buyer when payment for the goods takes place. Airlines use what is called an Air Waybill.

b) Auxiliary Documents: Auxiliary Documents are given below-

i. Cargo manifest or packing list:

When quantities, weights or contents of the various packing cases in an export shipment vary, it is usual to prepare a separate list for each case indicating its contents, weight and measurements. It also often includes the outside dimension of each case and the total cubic content and total weight of the shipment.Usually, cargo manifests or packing lists are not specifically required by the Customs authorities, from various importing countries. However, they serve as useful supplements to the commercial invoice that accompanies the export shipment.

ii. Certificate of Origin:

Certificate of Origin is a document, which indicates the country in which the goods were produced, is required whenever preferential duties are claimed. Sometime, consular legalization of the document is necessary. Also, certification of the document by a Chamber of Commerce is required.

iii. Quality control certificate:

While exporting products for which quality control certificate is obligatory, the exporter will have to submit, to the Customs Authorities, a quality control certificate issued by the appropriate authority.

iv. Consular Invoice:Some country required consular invoice. Countries that require a consular invoice also require a commercial invoice as additional proof of the details of the export shipment. Countries that do not require a consular invoice, uses the commercial invoice as the document upon which the import duty is based.

v. Inspection Certificate:Some purchasers and countries may require a certificate of inspection attesting to the specifications of the goods shipped, usually performed by a third party. Inspection certificates are often obtained from independent testing organizations. vi. Certificate of free sale:This certificate required for pharmaceuticals and certain chemicals entering a number of countries.

vii. Export Declaration Forms:It is usually necessary for the exporter wishing to ship goods abroad, to fill out a form called an Export Declaration. This form required by the government whenever the value of the shipment exceeds a certain minimum amount or whenever a duty drawback is claimed; it is available at local Customs offices.The document is also used for statistical purposes so that government authorities know exactly what has been exported from the country in each month and year and to which country. The information required include a description of the goods, their quantity, value and destination of the goods and whether the goods originated in the exporting country or are the goods of foreign origin being re-exported 8.3 Registration for the Exporter

In the export policy of Bangladesh any one can not export goods in abroad. To export goods an exporter needs a valid Export Registration Certificate from the Chief Controller of Import and Export (CCI&E). Exporters find an Export Registration Certificate (ERC) number which is incorporate on Export form and papers connected for obtaining Export Registration Certificate. A Bangladeshi exporter has to apply to the controller or joint controller or Deputy Controller or Assistant Controller of Import and Export to get an ERC. The ERC have to renew every year. An exporter can do this registration from Dhaka, Chittagong, Sylhet, Comilla, Barishal, Borga, Rangpur, Dinajpur and from Mymensingh. The following documents are required for ERC-

1. National ID card 2. memorandum and Article of Association and Certificate of Incorporation in case of limited company3. Trade license4. bank Certificate5. Assets certificate6. Income Tax certificate etc.

The Export Registration Certificate has to renew every year. The renewal fee given below-

Export less than $5000000 TK.3000 Export more than $5000000 TK.5000 8.4 Processing of export order (export cycle)

1. Setting up the deal:

First an exporter and importer have to establish sales contract, by either being in possession of an international purchase order or a documentary credit stating exporter as the beneficiary. Now exporter in a position to process the order. 2. Shipping the goods:

Once the deal has been set up, the following steps take place:

Read the purchase order/documentary credit very carefully and take note of the requirements of the buyer. If there are any pre-shipment actions that must occur, these activities must take place before book the freight and load the container. Pre-shipment activities could include pre-shipment inspections, health inspections or product analyses, all of which must be carried out before the goods have been packed for shipping. A declaration is a commitment to the Bangladesh Bank that funds will be brought into the country in exchange for goods. Now get ready to pack and label the goods. At this point, exporter can contact freight forwarder to make a booking on the next available carrier.. Freight forwarder will deliver the goods to the carrier and obtain a transport document as proof of receipt. He is now in a position to arrange for customs clearance, which will require the submission of a customs bill of entry and a transport document (in the case of air, road and rail exports). Then hand over the transport and insurance documents to Exporter. Now exporter assemble all export documentation such as the commercial invoice, packing list, transport document, insuranc