PROJECT REPORT ON

FOREIGN EXCHANGE RISK

MANAGEMENT

Submitted by:
ABHISHEK GIROTRA
605/MP/10

In partial fulfillment of the requirements for the award of the degree of

BACHELOR OF ENGINEERING (BE)

IN
MANUFACTURING PROCESS AND AUTOMATION ENGINEERING

Department of Manufacturing Process and Automation Engineering

Netaji Subhas Institute Of Technology (NSIT)
Delhi University (DU)

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 CONTENTS

ACKNOWLEDGEMENT 3

OBJECTIVES 4

COMPANY PROFILE 5

FUTURE PLANS OF MMTC 9

FOREIGN EXCHANGE 10

FOREIGN EXCHANGE RISK MANAGEMENT 11

TOOLS TO COVER EXCHANGE RISK 13

FORWARD COVER 18

MERITS AND DEMERITS OF FORWARD COVER 24

FORWARD COVER WITH OPTIONS 28

SWAP COVER 42

EXPORT\IMPORT DOCUMENTATION 51

BIBLIOGRAPHY 58

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 ACKNOWLEDGEMENT

No task is a single man’s efforts. Co-operation and Co-ordination of

various people are ingredients to successful implementation and it’s
impossible to thank all of them individually. I take this opportunity to
convey my deepest gratitude to all of them.

I would like to thank MR ANUP KUMAR SINHA (MANAGER

FINANCE & ACCOUNTS) for his kind support at different times.

Last but not the least; I am thankful to all my friends and other
employees of MMTC who directly or indirectly helped me in making
this training a success.

ABHISHEK GIROTRA

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 OBJECTIVES

This Project Report focuses on two objectives:

1. Foreign Exchange Risk that are involved in International Trade

and its management.

2. Export\Import Procedures.

All these tasks were completed successfully in the period of the

internship extending from 2nd JUNE to 15th JULY 2013.

Since the international financial markets are heaven for international

trade, they are marked by a very high degree of volatility but with the
help of tools available it is possible to partially or fully transfer the risk

As instruments of risk management these generally don’t influence the

changing conditions but minimizes the impact of fluctuations on the
profitability and cash flow situation of the organization and risk-averse
investors.

So Foreign Exchange Risk Management is of utmost importance in

International Trade. Thus, I have listed some methods and tools used
by the MMTC for controlling the risk associated with the foreign
exchange rate and to analyze them in terms of their merits and
demerits and to finally suggest the most safe and less expensive
method

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 COMPANY PROFILE

MMTC was established in 1963. The last four decades of MMTC's

dedication has richly rewarded the company by placing the company
in its present enviable position of India's largest international trading
house. The company recorded business volume of Rs, 151,237 million,
Rs 30,309 million from exports and Rs 110,325 million through
imports.

It is the first international trading company of India to be given the

coveted status 'SUPER STAR TRADING HOUSE' and it is the first
public sector enterprise to be accorded the status of 'GOLDEN SUPER
STAR TRADING HOUSE' for long standing contribution to exports.

MMTC is the LARGEST NON-OIL IMPORTER in India. It's vast

international trade network, which includes a wholly owned
international subsidiary in Singapore, span more than 85 countries in
Asia, Europe, Africa, Oceania and America, giving MMTC a global
market cove

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CORPORATE MISSION:

As a major trading company in Asia, MMTC aims at improving its

position further by achieving sustainable and viable growth rate
through excellence in all its activities, generating optimum profit
through total satisfaction of shareholders, customers, suppliers,
employees and society.

CORPORATE OBJECTIVES:

 To be a leading international house operating in the competitive

global trading environment, particularly specializing in bulk
activities and earn adequate returns on capital.

 To strive to become market leaders in most of its traditional

product lines like Minerals, Metals, Fertilizers and precious
Metals.

 To render high quality of service to all categories of customers

with professionalism and efficiency, and to provide high quality
of goods and services to all customers.

 To provide support services to the medium and small-scale

sectors.

 To put in place a streamlined and efficient system within the

company for settlement of commercial disputes.

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 To promote development of infrastructure facilities to facilitate
trade related activities.

INFRASTRUCTURE:

MMTC has a strong nationwide presence with 76 offices covering

all the major consumption centers and ports towns in India with
deployment of over 2000 highly skilled and experienced labor
across the country. The company also has an international trading
set up in Singapore serving clientele in China, South East Asia and
countries in Far East. With the 'state of art' wide area network
providing online information exchange throughout the country
through ERG, the company has capability to pro-actively source
items surplus to domestic demand for export from India and also to
coordinate the demand of domestic users for import. It has its own
warehouse, storage facilities, and handling and transportation
network and quality control mechanism to provide quick and quality
services to its clientele.

The company handles about 15 million tones of cargo annually and

is the largest single user of the railways and port facilities for
international trading operations in India.

LOGISTICS AND CUSTOMER SERVICING:

Headquartered in New Delhi with port and regional offices

providing the logistic support, the company services a large
customer base in India. Every key requirement of the customers

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receives focused attention with a view to provide services to their
utmost satisfaction.

OPERATING AREAS:

1) MINERALS:

MMTC is the largest exporters of Minerals and Ores from India

exporting Iron Ore, Manganese Ore, Chrome Ore and Minor
Minerals for over four decades. It has been successfully providing
outlets to the various Ores being produced in different mining
regions. With its comprehensive infrastructure, experience and
expertise to handle Minerals, the company provides end-to-end
logistics from procurement, quality control to timely deliveries from
different ports through its wide network of regional and port offices
in India. MMTC holds a unique record of being the leading minerals
exporters from India, securing country's highest export award from
CAPEXIL for 12 years in a row.

2) PRECIOUS METALS:

MMTC is the largest importer of Gold in India handling nearly 100

tones of Gold and 500 tones of silver annually for supplies to
bullion dealers as to small and medium jewellery manufacturers in
India. MMTC also sells branded, hallmarked Gold and studded
jewellery in the domestic and international markets, through major
jewellery exhibitions, its exclusive jewellery duty free showrooms
and retail outlets.

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'SANCHI'-MMTC's brand of sterling silverware -is sold through
sale counters from its regional offices, franchisees, duty free
showrooms, and exhibitions and from various state Emporia.
MMTC also imports rough diamonds, other precious and semi
precious stones.

3) NON-FERROUS METALS AND INDUSTRIAL RAW

MATERIALS:

The Company is India's single largest importer and distributors of

Non-ferrous Metals and Industrial Raw Materials such as Copper,
Aluminum, zinc, Lead, Tin, Nickel, Metal Concentrates, Brass,
Magnesium, Antimony, Silicon and Mercury. It organizes supplies
of quality products conforming to international specifications like
ASTM, BSS and LME approved brands. Deliveries to customers are
executed on high seas, ex-godown or ex-bond basis to suit specific
needs.

The Company also provides risk management tools such as future

trading and hedging options through international/national
commodity exchanges offering value added services for the benefits
of its customers.

4) AGRO PRODUCTS:

MMTC is India's leading exporters and importers of Agro

Commodities. It exports Wheat, Rice, Maize, De-oiled Cake etc and
imports items such as Edible Oil, Pulses, Raw Sugar etc. The
Company also undertakes domestic marketing of sugar and pulses.

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5) COAL AND HYDROCARBONS:

MMTC is aggressively pursuing business opportunities in the Coal

and Hydrocarbon sector and is one of the major importers of Low
Ash Metallurgical Coke, Non-Coking (Steam) and Coking Coal,
Naphtha, Superior Kerosene Oil,
Furnace Oil, Bitumen etc for state Electricity Boards, Power Plant,
Cement and Paper Industry, Coke Oven batteries, Fertilizers Units,
Steel Industry, Foundries etc in India. It also has its captive coke
oven battery producing 800,000 tones of metallurgical coke
annually from the imported coal.

6) FERTILIZERS AND FERTILIZERS RAW MATERIAL:

A major player in the Fertilizers business, MMTC is one of India's

largest buyers of finished Fertilizers and Fertilizers Raw Materials
like Urea, Muriate of potash, Di-Ammonium Phosphate, Sulphur,
Rock Phosphate, Phosphoric Acid etc. with over three decades of
fertilizers handling experience. The Company also undertakes
merchanting trade in fertilizers across the borders and with other
countries.

7) GENERAL TRADING:

MMTC also deals in international trading of items like Building

Material, Engineering Goods, Security/Medical equipments,
Timber, Textiles, Raw Silk, and Yarn etc. To facilitate international
trade, MMTC undertakes exchange of goods and services under
Barter system

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 FUTURE PLANS
MMTC has drawn up ambitious plan to expand its role as a trade
organizer and facilitator by venturing into newer areas such as Power
Trading, Carbon Trading, development of a nationwide cold chain,
development of resources abroad for commodities, which are imposed
perennially to meet the national demand/supply, gap besides entering
into long-term strategic alliances for energy inputs such as coal, LNG,
etc. Projects such as beneficiations of low-grade minerals for value
addition and exports, partnership in processed food production and
exports, expansion of distribution network in rural areas, building up
domestic and export outlets for handcrafted jewellery and other related
articles made by local craftsmen and artisans by enlarging existing
franchisee network and expansion of assaying and hall marking
activities and priority areas for the short and medium terms plans for
the company.

HUMAN RESOURCE MANAGEMENT:

As the Company is exploring new markets, business lines and industry

domain, new skill sets are to be developed. The 239% Increase in
employees' productivity can only be sustained through continuous
competency development programmes. The training programmes
conducted during the year thus were not only more inclusive and
focused, but also covered new domain knowledge, processes involved,
execution strategies and leadership. During the year, MMTC recorded
a growth of 77% in the training man-days across various groups.

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The Company also encourages employees to acquire additional skills
as also technical/functional expertise through part-time and long
distance courses apart from knowledge sharing and networking
through participation in seminars and technical sessions. All this is to
ensure that MMTC retains its leadership position in the industry and
offers services better than ever.

CORPORATE GOVERNANCE:

MMTC believes in the highest degree of corporate practices exercised

by adopting best standards of transparency, accountability,
professionalism, social responsiveness and ethical business practices
with improved focus on customer satisfaction to maintain itself as a
value driven organization.

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MMTC’S BUSINESS CYCLE

As the most reliable and able organization in India MMTC is carrying

its business in a dominating manner with the least chances of
occurrence of any risk. The business is carried out in a cyclic manner
where MMTC act as the central force. The cycle begins when the
customer applies to MMTC for goods to be imported by MMTC on
their behalf. The application is accompanied with the documents
describing the quality, quantity, and the change in price in case the
specifications are not met and any other specification if any.

After receiving and scanning the proposal MMTC sends final contract,
specifying its own terms and conditions including the price of the
transaction, which is normally 2% -2.5% of the total transaction.
Normally all the payments are received in through letters of credit, but
in some cases only 15% payment is received in advance this sum is
called EMD (EARENST MONEY DEPOSITE) and rest on the
delivery of the cargo.

After the customer accepts the contract, he is liable to open L/C in

favors of MMTC. Open L/C assures the organization of payments in
case the customer fails to meet his liabilities.

Once the L/C is opened MMTC places order to the oversea supplier.
After negotiating on the price, and terms like shipment mode and
insurance the supplier exports the goods for MMTC. MMTC supplies
these goods further to the customer after receiving the agreed margin.

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In case if MMTC is providing any credit facility or finance, it is
charging some interest to the customer. This interest is based on
LIBOR (LONDON INTERBANK OFFERED RATE).

CUSTOMERS

REPLY WITH
APPLY WITH CONDITIONS
CONDITIONS (LIBOR + COMMISSION)

MMTC

PLACES
ORDER NEGOTIATIONS

FOREIGN
SUPPLIERS

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FACTORS AFFECTING EXCHANGE RATES

A country's exchange rate is typically affected by the supply and

demand for that country's currency in international exchange markets.
This is typically known as a floating exchange rate. If demand, for say
dollars, exceeds supply, then the value of the dollar will go up. If
however, the supply of dollars exceeds demand, then its value will go
down. A huge amount of money is bought and sold on international
exchange markets for many different currencies.

Several factors influence the supply of, and demand for, a given
country's currency.
If INTEREST rates are HIGHER in, say, the US than in other
countries, then investors WILL choose to invest in the US, increasing
demand for the dollar, provided that the expected rate of inflation is
not higher in the US than among our trading partners. If INTEREST
rates are LOWER in the US than in other countries, investors will
choose NOT to invest in the US, decreasing demand for the dollar.
If the US INFLATION rate is HIGHER, investors are LESS likely to
prefer the US -even with higher interest rates- because of the
expectation that the value of the dollar will be ERODED by inflation.
If our INFLATION rate is LOWER, investors are MORE likely to
prefer the US, because there will be NO expectation that the value of
the dollar will erode.

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Trade balance also has an effect on a country's currency. If world
prices for what a country exports rise in comparison with the cost of
that country's imports, that country will be earning more for its exports
than it pays for its imports. The more demand there will be for that
country's currency, the better the deal becomes. If investors are
confident that the US economy will be strong, they will be MORE
likely to buy American assets, pushing UP the dollar's value. If
investors are not so confident that the economy will be strong, they
will be LESS likely to buy the country's assets, pushing the dollar's
value DOWN.

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 FOREGIN EXCHANGE
RISK MANAGEMENT IN MMTC

Presently the MMTC is using only the forward contracts to avoid any
type of risk associated with the foreign exchange
With a view to exercise overall control on the inflow and the outflow
of foreign exchange, the banking section at the corporate office in
Delhi centrally controls it.
Following steps are followed in order to take the forward cover

1. Immediately, after signing the contract whether it relates to the

import or export the concerned profit center will furnish the
following particulars to the banking section.
1. Contract no. and date
2. Quantity
3. Price
4. Total value of the contract

2. Shipment schedule for each lot to be shipped under the contract

In addition, as soon as the letter of credit (L/C) is received or
opened against a particular contract the details thereof shall also
be furnished to the banking section immediately after
receipt/opening of L/C.

3. A copy of any amendment to a contract, if any, affecting any of

the items at 1 to 5 shall also be forwarded to banking section
within three days of any such amendment.

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4. A monthly statement of all the contracts signed during a month
shall be forwarded by all the profit centers to the banking section
with the particulars of contracts received by the mentioned above
have been received in all the cases

5. After receipt of contracts covering both imports and exports

during the particular period, the values of such contracts shall be
totaled by the banking section and the net exposure on forex is
worked out by deducting the aggregate value of the export
contracts from the aggregate value of import contracts.

6. Banking section shall call for weekly market report on forex from
at least 2-3 bankers to assess the market trend

7. After assessing the trend the banking section shall take a decision
in respect of each contract whether to opt for forward cover or not
and the reasons for or against the cover shall be recorded in
writing against each contract in the contract register which shall
be opened by the banking section for this purpose

8. When the fluctuation in the forex market is not volatile, the

forward cover can generally be kept at 50% of the net exposure.
However when the market is volatile it will be desirable to take
cover up to 80-100% of the net exposure.

9. Booking of the forward cover shall be done only with the

approval of the director finance after booking the forward cover
the banking section shall inform the concerned profit center in
writing about the forward cover rate, quantity and the value
pertaining to the contract for which the cover has been taken on

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 the due date of payment the concerned profit center will pay or
receive the proceeds through authorization letter to the bank. A
copy of which shall also be forwarded to the banking section.

10. After reception of the authorization letter the banking section

shall records the particulars in contract register about the
utilization of the forex cover a weekly statement of the net forex
exposure shall be prepared by the banking section and put up to
the director finance and CMD along with the analysis report of
the market and its opinion regarding the likely gain or loss on the
unutilized forward cover taken during the current financial year
similarly a monthly account of all previous forward cover
transaction during the relevant financial year shall also be put up
to DF/CMD indicating the net gain or loss up to the period . The
gain or loss in respect of each transaction shall be worked out on
the basis of the differences between the forward cover rate and
the spot rate prevailing on the date of payment.

The above mentioned drill relates to the import/export against letters

of credits where the documents received on cash against documents
basis by the profit centers the same shall also be paid only through
banking section where after the banking section shall obtain the quotes
from at least three of the banks on the panel of the organization and
after due negotiation shall firm up the rate at which the documents are
to be paid. All these particulars shall also be recorded in cad register to
be opened by the banking section. After firming up of the rate, the
banking section shall inform the name of the bank and the rate at
which the documents are to pay to the concerned profit center for

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insurance of payment authority by the associate finance of the
concerned profit center.

FOREGIN EXCHANGE RATE

In old age transportation and communication facilities were in an

underdeveloped state, hence trade business activities of an enterprise
were primarily under local region. With the development of speedy
transportation and communication facilities goods, services and capital
can be seen moving freely across the national frontiers. Now the
business concerned are engaged in cross-border trade and finance
activities. These concern import and export the goods and services,
they invest and borrow in international capital market and they operate
in joint venture in different countries. For all these international
business activities, the concern has to purchase /sell currencies of other
countries.

Suppose that SF Ltd. has entered into a contract with a French

company to import a machine for two-corer French franc. As per
contract, SF is required to make the payment to the French co in
franc .SF need franc to honors its payment obligation for which it will
approach a commercial bank dealing in the foreign exchange market to
purchase franc by exchanging Indian rupees.

Similarly if SF Ltd. has to export goods to a German importer the

German Co. will make the payment in to SF in deutsche mark. SF will
convert the marks into rupees in the foreign exchange market. Thus, a
concern has to one currency with other currency in connection with its
international economic activities.

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Different countries have different currencies and different currencies
have different values. Evidently, there is a need of the rule for
currency conversion for global business and investments. The rate of
conversion i.e. the rate at which the exchange between two currencies
takes place is known as exchange rate. An exchange rate specifies the
number of units of a given currency that can be purchased for one unit
of another currency.
Currencies can be bought or sold on :

a) Spot rates

b) Future rates

Spot Rate – Spot Rates are applicable to the purchase and sale of
foreign exchange on an immediate delivery basis. Though the term
immediate gives the impression of instantaneous delivery, in practice
the spot rate is the rate of day on which the transaction has taken place,
though the execution of transaction occurs with in a maximum of two
working days.

Forward Rate - The exchange rate of a future transaction is called as

forward rate. A future delivery transaction is one in which a contract is
made between two parties for purchase and sale of the one currency
against other at a stipulated future date agreed upon at the time of
contract. In such contracts, deliveries of currencies are made on the
stipulated future date at pre specified forward rate.

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For example spot rate$1 = Rs. 52.50
90 days forward$1= Rs. 54.90

If a person agrees to purchase one thousand quantities after 90 days

forward on the above basis then under this contract he will pay to bank
Rs. 54900 and the bank will provide him $1000.The delivery of both
the currencies will take place after 90 days.

THE FOREIGN EXCHANGE RISK CAN BE HEGED

EITHER INTERNALLY OR EXTERNALLY.
INTERNAL STRATEGIES:

A firm may be able to reduce or eliminate foreign exchange risk by

means of internal strategies such as

a) Currency invoicing:
A firm may be able to shift the entire exchange risk to the other party
by invoicing its exports in its home currency and insisting that its
imports too be invoiced in its home currency.

In order to avoid the exchange rate risk, many companies tries to

invoice their export in national currency and try to pay their suppliers
in the national currency as well. This way an exporter knows exactly
how much he is going to receive and how much he is to pay, as an
importer.

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This method is a noble one. However, an enterprise suffers under this
method if the home currency appreciates. Companies may have to
recourse to invoicing in a currency whose fluctuations are less erratic
then those of the national currency. For example, in the countries of
the European union, the use of European currency is gaining
popularity’.

b) Netting and offsetting:

A firm with receivables and payables in different currencies can net
out its exposure in each currency by matching its receivables with
payables. For example, a firm with exports and imports from France
need not to cover each transaction separately; it can use a receivable to
settle all or part of a payable and take a hedge only for the net francs
payable or receivable.

This technique consists of accelerating or delaying receipt or payment

in foreign exchange as warranted by the position/expected position of
the exchange rate.

The principle involved is rather simple:

If depreciation of national currency is apprehended, importing

enterprises like to clear their dues expeditiously in foreign currencies;
exporting firm prefer to delay their receipts from their debtors abroad.
These actions, however, if generalized all over the country, may be
weakening the national currency. Therefore, certain countries like
France regulate the credit accorded to foreign buyers to avoid market
disequilibrium.

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The converse will hold true if an appreciation of national currency is
anticipated; importing firm’s delay their payments to foreigners while
the exporting ones will attempt to get paid at the earliest. These actions
may have a snowballing effect on national currency appreciating
further.

Sometimes, a currency might have receivables in one currency say,

DM and a payable not in the same currency but a closely related
currency such as francs; the exposure arising from the same can be
offset. For example, loss on a payable due to an appreciation of the
Swiss franc vis-à-vis the firm’s home currency will be closely matched
by the gain on the receivables due to the appreciation of DM.

c) NETTING (INTERNAL COMPENSATION)

An enterprise may reduce its foreign exchange risk by making and
receiving payments in the same currency. Exposure position in that
case is simply on the net balance. Hence, a firm should try to limit the
number of invoicing currencies. The choice of the currency alone is
not sufficient. Equally important is that the dates of the settlement
should match.

d) BILATERAL

Netting may be bilateral or multilateral. It is bilateral when two

companies have relations and do buying and selling reciprocally. For
example; a parent company sells semi-finished products to its foreign
subsidiary and then repurchases the finished products from the latter.

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MULTILATERAL

Netting can equally be multilateral. This is taken recourse to when

internal transaction are numerous. Volume of transaction will be
reduced each company of the group will pay or be paid only net
amount of its debit or credit.

e) LEADING AND LAGGING

This is another way of managing exposure by shifting the timing of the
exposure by the leading and lagging payables and receivables. The
rule of thumb is lead i.e. advance payments and lag i.e. postpone
receivables in strong currencies and conversely in weaken currencies
Lead and lag in combination with the netting from an important cash
management strategy for multinationals with extensive intra-company
payments.

f) INDEXATION CLAUSES IN CONTRACTS

For protecting against the exchange rate risk sometimes, several
clauses of indexation are included by the exporters and importers. A
contract may contain a clause where by prices are adjusted in such a
manner that fluctuation in exchange rate are absorbed without any
visible impact.

If the currency of the exporting country appreciates, the price of the

export is increased to the same extent or vice versa. Therefore, the
exporter receives almost the same amount in local currency. Thus, the
exchange rate risk is born by the foreign buyer. A variant of the above
is the indexation of the price to a third currency or to a basket of

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currencies like ECU or SDR. This clause has repercussion for both the
parties to the contract.

Another variant of the indexation may be that the contract incorporates

a clause stipulating that an appreciation or depreciation would be taken
into account only beyond a certain level, say higher than 4% or 5%.

There is another possibility where the contracting parties may decide

to share the risk they may stipulate that part of the exchange
variations, intervene between the dates of contract and payments will
be shared by two in accordance with a certain formula, for example
half-half or one-third, two-third, etc.

SWITCHING THE BASE OF MANUFACTURING

In case of manufacturing companies, switching the base of

manufacturing may be useful so that costs and revenues are in the
same currency.e.g. JAPANESE car manufacturers have opened
factories in EUROPE.

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EXTERNAL STRATEGIES
A firm may select from the following techniques, to hedge a part or all
the transaction exposure:

a) FORWARD CONTRACTS:

Forward contract is an excellent planning tool that allows accurate

cash flow forecasting and protects against adverse movements in the
spot rate. A forward contract is the simplest method of locking in an
exchange rate for company to buy or sell a certain amount of currency
on or before a specified future date. Fixing the exchange rate allows
more accurate forecasting of the cash flow, facilitating the budget
process. The company is protected against the adverse movements in
the exchange rate but cannot take advantage of favorable moves.

A forward contact is an agreement between two persons for the

purchase and sale of a commodity of financial asset at a specified price
to be delivered at a specified future date.

Advantages of forward contract are:

 It can be used to hedge or protect oneself from the price

fluctuation on the future commitment date to the extent of 100%

 The up-front fees or the margins are not applicable to forward

contracts, hence no initial costs.

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Disadvantages:

 Forward contracts are not performance guaranteed. Hence,

involve counter party risk.

 The investor cannot derive any gain from favorable price

movements either before or on delivery date
 Forward contracts are not traded in the secondary markets; hence,
there is no ready liquidity
 Banks being one of the counter parties enter into reverse
transaction to square positions and hence charge huge bid-ask
spread.
 A forward contract locks one investor to a particular exchange
rate thereby insulating the firm from exchange rate fluctuations.

In India, the forward contract has been the most popular

instrument employed by the corporate to cover their exposures,
and, thereby offset known future cash outflow.

Forward contracts are usually available for a period of 12 months.

Forward premiums are governed purely by the demand and
supply which provide corporate with arbitrage opportunities. The
premiums in this market are quoted until the last working day of
the month.

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Internationally, the forward premiums or discounts reflect the
prevailing, interest rate differentials. Arbitrage opportunities are,
therefore, limited as a rule, a currency with higher interest rate trade at
a discount to the currency with a lower interest rate. Since there is a
forward market available for longer periods, the forward cover for
foreign exchange exposures can be stretch up to five years. The
premiums, or the discounts, are quoted on a month-to –month basis.
That is from the spot date to exactly one month or two months or even
a year.

SWAP CONTRACTS

A forward to forward contract is a swap transaction that involves the

simultaneous sale and purchase of one currency for another, where
both transactions are forward contracts. It allows the company to take
the advantage of the forward premium without locking on to the spot
rate. The spot rate has to be locked onto before the starting date of the
forward-to-forward contract.

A forward-to forward contract is a perfect tool for corporate houses

that want to take the advantage of the opposite movements in the spot
and forward market by locking in the forward premium at a high or a
low level now, CFO’S can defer locking on the spot rate to the future
when they consider the spot rate to be moving in their favor.

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 b) RANGE – FORWARDS

A range forward involves the simultaneous purchase and sale of an

option at a different strike prices, but having the same maturity date
and the same principal amount.

EXAMPLE:

Company X is importing machinery worth DM 1 million. Although

the chief finance officer wants to insure against downside losses, he
finds the option premium are exorbitant. In exchange for a lower
premium, say 0.5% he is willing to give up some of the upside gains if
the DM moves above 1.7600. Therefore, He buyers a range- forward,
which limits the fluctuations of the DM to a band between 1.7600 and
1.7200.

c) RATIO RANGE – FORWARDS:

A ratio range forwards is an improved version of the basic range

forward. The difference is that the principal amounts on the two
options differ. The buyer gets full protection on the downside but
shares the profit with the writer in a predetermined ratio if the currency
moves above a specified level. As this is an additional benefit, the ratio
range-forward is more expensive.

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If we consider the case of a CFO who would lie to restrict his
downside to DM 1.7200 to the dollar. However, he does not want to
rule out the possibility of a strong dollar appreciation. The ideal
instrument would be a ratio range-forward, which allows the CFO to
have a specified share – say 30% in the gains if the DM crosses the
1.7600 mark.

TERMS AND CONDITIONS APPLICABLE TO FORWARD

CONTRACTS IN INDIA

 Available for exposure arising out of genuine export/import

transaction.

 Can be entered between authorized dealer and any entity, which

is a resident of India.

 Authorized dealer must ensure that the investor is exposed to the

exchange change risk.

 Exchange broker cannot act as an authorized dealer.

 Maximum tenure of forward contract is 6 months but can be

extended to another 6 months if need arises.

 Forward cover in respect of one commercial transaction cannot be

extended to any foreign exchange commitment or risk.

 Forward contract can be cancelled for a fee.

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 FORWARD COVER WITH OPTIONS
An option is a contract in which the seller of the option grants the
buyer of the option the right to purchase from or sell to the writer a
designated instrument for a specified price within a specified period of
time.

A derivative instrument gives its owner the right but not the obligation
to buy or sell the currency in future. The obligation part is the
significant difference between the future and option. Since there is no
obligation in case of options the owner of the option can hold his right
but choose not to exercise it if the price movement is not favorable to
him.

As no one is going to just give you a right and keep the performance
obligation on to themselves, some costs is attached with options
known as option premium. The premium should be adequate for the
risk born by the writer and yet, from the holder’s point of view, must
be worth paying. If the option contains provision to the effect that it
can be exercised any time before the expiry of the contract, it is termed
as an AMERICAN CONTRACT .If it can be exercised only on the
expiry date it is termed as EUROPEAN CONTRACT.

The price at which the option holder can buy or sell the underlying
assets is called the strike price.

When the contract gives the holder the right to buy an asset, it is called
a call option. When option gives, the right to sell assets it is called the
put option.

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A call option grants its purchaser the right to buy some underlying
asset at a predetermined price called as EXERCISED PRICE on a
specified day MATURITY DATE

Suppose one’s view on the market is bullish and infosys is currently

trading at 4100. One can buy a call option on the infosys by paying a
small premium and therefore get the right to buy the share at a future
point time at 4100 if on the maturity date, the price of infosys is higher
than 4100 then the holder of the call option can exercise his right and
ask for the stock which he can then sell in the market at a higher price
for profit. If the price is lower than 4100 at the maturity date, he can
simply allow the option to expire without exercising it .His only loss is
the premium paid to acquire the call option.

A put option grants the purchaser the right (but not the obligation) to
sell some underlying asset at a predetermined price on a specific date.

In the above example if our view in the infosys is bearish, then one can
buy a put option by paying a small premium .if the price on the
maturity date is less than 4100 then the holder can exercise the option
and deliver the stock on 4100 (or sell it at that price and buy it back at
the current lower price in the market). If it is however quoting higher
than 4100, the holder allows the option to expire without exercising his
right.

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Features of options:

1. Call and put option allows the holder the right to buy or sell some
underlying asset without the obligation to perform on the contract
upon maturity.

2. Options are both the exchange traded and the over the counter
traded.

3. The right to purchase exists up to the time of expiration of the

contract.

4. The price at which the option holder may purchase or sell the
underlying assets is called the option strike price or the exercise
price.

5. The option purchaser is long the contract while the option writer
is short.

6. The option contract must also specify underlying asset as either

call or put.

7. Each option has an upfront charge known as option premium.

8. Option is worth nothing after it expires, even if it has not been

exercised.

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 9. The option contract seller has an absolute obligation to deliver the
underlying asset if called upon to do so.

Intrinsic value and time value of an option

Intrinsic value and time value of an option are primary determinants of
an option’s price. Using them one can find him in a much better
position to choose the option contract that best suits his particulars
investment requirements.

Intrinsic value is the values that any given option would have if it were
exercised today. It is defined as the difference between the option
strike price (x) and the stock’s actual current price (cp).

In the case of call option, you can calculate this intrinsic value by
taking cp-x .If the result is greater than zero (in words, if the stock’s
current price is greater than the option’s strike price), than the amount
left over after subtracting cp-is the option’s intrinsic value. If the strike
price were greater than the current stock price, than the intrinsic value
of the option is zero –it would not be worth anything if it were to be
exercised today, as the options intrinsic value can never be below zero.
To determine intrinsic value of a put option, simply reverse the
calculation to x-cp.

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To illustrate let us assume MMTC stock is priced at Rs. 105. In this
case, a MMTC 100-call option would have an intrinsic value of (105-
100=5). However, a MMTC 100 put option would have an intrinsic
value of value of zero (100-105=-5). Since this figure is less than zero,
the intrinsic value is zero. Again, intrinsic value can never be negative.
On the other hand if we were to look at a MMTC put option with a
strike price of Rs 120, then this particular option would have an
intrinsic value of Rs. 15 (120-105=15).

TIME VALUE

This is the second component of tan option’s price. It is defined as any

value of an option other than its intrinsic value. Looking at the above
example if MMTC is trading at Rs. 105 and the MMTC 100 call
options is trading at Rs. 7, than we would say that this option has Rs. 2
of time value (7-2=2 time value). Options that have zero intrinsic value
are comprised entirely of time value.

Time value is the risk premium that the seller requires to

provide to the option buyer with the right to buy/sell the
stock up to the expiration date.

This component may be regarded as the “insurance premium” of the

option. This is also known as the extrinsic value. Time value decays
over time. In other words, the time value of an option is directly
related to how much time an option has until expiration. The more
time an option has until expiration, the greater the chances of option
ending up in the money.

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FUTURES CONTRACTS:

A future contract is an agreement between a seller and a buyer which

require the seller to deliver to the buyer a specified quantity of
security, commodity or foreign exchange at a fixed time in future at a
price agreed to at the time of entering the contract. Futures contracts
are traded in designated futures markets unlike forward contracts that
are executed over the counter. The term of future contracts are
standardized to reduce the transaction cost to the bare minimum.

The oldest futures contracts are the Chicago board of trade in USA .the
CBOT was limited to the agricultural futures for the last 100 years.
With the increased volatility in the financial markets, CBOT, along
with the others future exchanges have started creating markets in the
financial future.

Futures contracts are bought and sold for many reasons.

Individuals deal in future contracts to speculate the future price of the

assets or commodity underlying the future contract. Corporate enter
into future contracts to eliminate the risk exposure occurring due to
changes in the price of the commodity. Fund managers use futures as a
more economical way of achieving their portfolio goals.

Speculators deal in future contracts to benefit from the price

fluctuations in the underlying assets and the commodity, while hedgers
seeks to protect themselves against the price changes in commodities
in which they have an interest.

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CHARACTERISTICS OF FUTURES:

ORGANISED CHANGES:

Futures contracts are traded in organized exchanges with a designated

physical location for futures trading. This provide instant liquidity as
futures contracts can be sold and bought anytime like in a stock market

STANDARDIZATION:

The futures contracts are standardized in the sense that the price, the
quantity and the date of maturity is fixed by the exchange in which
they are traded.

CLEARINGHOUSE:

The clearing-house act as an intermediary between the parties. As soon

as the deal is struck between x and y, two contracts are entered into.
One between x and the clearinghouse and the other between the y and
the clearinghouse .the clearinghouse act as a buyer for every seller and
seller for every buyer. It guarantees the performance of the contract.

MARGINS:

Only the members of the respective exchanges can enter into the future
contacts. They are required to deposit the margin money with the
clearinghouse. The amount of this margin money is generally between
2.5% to 10% of the value of the contract but can vary.

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MARKING TO MARKETS:

At the end of each trading session, all outstanding contracts are

appraised at the settlement price of that trading session. This is known
as the marking to market. This would mean that some particulars
would make some losses while other would stand to gain. The
exchanges adjusted this by debiting the margin accounts of those
members who made a loss and crediting the accounts of those
members who have gained.

ACTUAL DELIVERY IS RARE:

In most futures markets the actual delivery takes place in less than one
percent of the contracts traded. Futures are used as a device top hedge
against price risk and as a way of betting against price movements
rather than a means of physical acquisition of the underlying assets. To
achieve this, most of the contracts entered into are nullified by a
matching contract in the opposite direction before the maturity of the
first.

TYPES OF FUTURES

Futures can be broadly classified into commodity and financial futures.

A commodity future is a future contract in a commodity like tea,

coffee, cocoa, aluminum etc.

A financial future is a future contract in a financial instrument like bill,

currency, and stock index.

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EXAMPLE: a fast food seller will need to buy additional wheat from
his supplier in the three months. However, he feels that the price of
wheat is going to increase by the time he needs the wheat in three
months. May be he feels this year the monsoon will not set in on time.
Because of fierce competition, he needs to hold his price constant. He
wants to make sure that he pays Rs. 355 per quintal. Therefore, to lock
in the Rs. 355 per quintal price, he buys a contract for three months out
at Rs 355 per quintal .if three months later the price of wheat has
raised to Rs.369 per quintal; he will pay his supplier Rs.369. However,
the Rs.14 increase has been offset by the Rs.14 increase in his future
contract.

On the other hand, if the price of wheat declines by an amount of Rs.

10 per quintal to Rs. 345 per quintal, the decline in the future contract
will be offset by the lesser amount the manufacturer has to pay his
supplier. Irrespective of what happens in the spot market, the
manufacturer has locked in a set price for the wheat he needs to
purchase in the future.

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SWAPS:

Foreign forward swaps eliminate potential losses resulting from

adverse exchange rate movements when foreign currency payables and
receivables are due on different dates. A foreign exchange swap
consists of a spot foreign exchange transaction entered into at exactly
the same time and for the same amount as a forward foreign exchange
transaction. The forward portion is the reverse of the spot transaction
i.e. a spot purchase is offset by a forward sale. In this way, surplus
funds in one currency are temporarily swapped into another currency
for better use of a company’s liquidity. The company is protected
against adverse movements in the exchange rates but cannot take
advantage of favorable moves.

TYPES OF SWAPS:

INTREST RATE SWAP:

An interest rate swap is an off-balance sheet contract between two

counter parties to exchange a stream of payments on specified dates
based on a notional principal. In a plain vanilla interest rate swap, a
series of payments calculated by applying a fixed rate of interest on the
same principal. This is a standard fixed-for –floating interest rate
swap.

Alternatively, both series of cash flow could be calculated using rates

of interest that are based upon different benchmarks. Floating rate

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benchmark include LIBOR, the 91 day T- BILL rate, the Reuters CP
reference rate, the bank rate etc. further, the interest payments are not
grossed-up like in call money transaction but are net settled on
payment dates.

The following participants are followed to undertake IRS/FRAs –

scheduled Commercial banks, primary dealers, all India financial
institutions, corporate, mutual funds and corporate. Corporate and
mutual funds can use these products only to hedge existing
assets/liabilities while the first three types of participants may do
market making. RBI has currently allowed transaction only in plain
vanilla IRS/FRA. Swap having explicit or implicit options such as cap,
floors or collars are not permitted.

OVERNIGHT INDEXED SWAPS (OIS)

Currently, the most common form of interest rate swaps in the Indian
market is the overnight indexed swap (OIS) . An OIS or call money
swap is a fixed to floating interest rate swap with the floating leg
linked to the overnight borrowing rate(CALL MONEY RATE) .the
tenor of the swap ranges typically from 2 days to one year.
To pay an OIS or to be long the OIS is to pay the fixed rate and
receive the overnight rate. It is akin to borrowing at a fixed rate and
lending at the overnight rate. A participant expecting call money rates
to tighten would pay on OIS. To receive an OIS or to be short the OIS
is to receive the fixed rate and borrowing at the overnight rate. A
participant expecting call money rates to soften would receive an OIS.

Advantages of Interest rate swaps:

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The primary advantage offered by Interest Rate Swaps is the facility to
hedge interest rate exposure in a flexible and easy manner. Further,
due to netting off interest payments, credit exposure is minimal.
However, swaps may also be used to execute interest rate views.
Specifically, banks, primary dealers and institutions may use Interest
Rate Swaps for the following:

Assets Management:
Swaps may be used to lock-in to a fixed rate, which may be higher
than the average floating rate while still maintaining liquidity by
receiving the fixed rate in an IRS.

Hedging:

Paying the fixed rate in an IRS and removing the risk of floating rates
shooting up may hedge a short period of volatility in the interest rates.

Liability Management: Raising term deposits can be replicated by

overnight borrowing and paying fixed in an IRS.

Execution of interest rate view: Portfolio size can be expanded without

putting a strain on funding by receiving the fixed rate in an IRS. In
addition, IRS allows a rising interest rate view to be executed by
paying fixed in an IRS.

Currency Swaps:

Currency Swaps are derivative products that help Manage exchange

rate and interest rate exposure on the long-term liabilities. A currency
swap involves exchange of interest payments denominated in two

43 | P a g e
different currencies for a specified term, along with the exchange of
principals. Either the rate of interest in each leg could be a fixed or a
floating rate indexed to some reference rate, like the LIBOR.

Consider a corporation that has USD loan with interest rate at a spread
over 6 month LIBOR .the Corporation faces the following risks

Currency risk: if the rupee depreciates against USD, it will be more

expensive for the corporation to service its loan.
Interest rate risk: an upward movement in LIBOR would increase the
cost of servicing the loan.

In order to hedge its risk the corporation can either enter into a
currency swap where it moves from USD floating rate loan to an INR
fixed rate loan. The currency swap could be represented as follows:

Lender

USD USD
Principal LIBOR
INR principal & INR fixed interest
Company IDBI
bank
USD principal & USD LIBOR

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Currency swap therefore enable a swap into both, a different currency
and a different interest rate basis .some of the advantages of currency
swaps are :
Enable moving a liability from one currency into another
 Can be customized
 Can be reversed at any time
 Off balance sheet and does not change the terms of the existing
liabilities.

Currency swaps can be structured to synthetically move liabilities in

one currency to another depending on which risk s and what costs are
acceptable. The interest rate on either of the legs can be floating or
fixed.

It is also possible to move rupee liabilities into foreign currencies

through currency swaps. Corporation wishing to match currency of
receivables could enter into such swaps. Corporation could also
undertake such swaps if they wish to take advantage of lower interest
rates in return for exchange rate risk.

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Consider a corporation that has an INR 25 corers loan at 9% fixed rate,
repayable bullet at the end of two years. If this corporation wishes to
swap its liability into a USD loan, the structure of the loan would be as
follows:

Lender

INR Loan
@ 9%
Usd principal & 6M LIBOR + spread
Company IDBI
bank
INR principal & 9% interest

The cash flow in this swap would be as follows:

AT INCEPTION

The loan is notionally converted from INR into USD at current

USDINR spot rate. these will then be the principal amounts on which
the interest will be computed.

EVERY 6 MONTHS

Company pays to the bank 6 month USD LIBOR plus a spread on the
notional USD principal

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Company receives from the bank rupee interest @ 9% on the notional
INR principal

AT MATURITY

Company receives INR principal from IDBI bank pays USD principal
to the IDBI bank. The company therefore gains from a lower interest
rate loan, for which it bears the cost of INR depreciation against USD
during the tenor of swap. Currency swaps can be used to move from
any currency to any other desired currency and intrest rate.

For example, a corporation could swap its INR liability into JPY to
benefit from low JPY intrest rates, the risk of adverse JPY/ USD
exchange rate movement can be limited to desired levels at a price.
Such products can be customized to suit specific corporate intrest.

It is also possible to structure swaps to hedge specific risks. For

example, there could be swap such that only the principal amount of a
foreign currency loan is protected at current exchanges rates
( PRINCIPALS ONLY SWAP) coupon swap –swap involving only
intrest payments and no principal amounts is another such variant.

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 EQUITY SWAPS:

An equity swap involves an agreement to exchange the returns on a

stock index portfolio for a flow of intrest payments. Such swaps could
be arranged for any of the major stock indices e.g. S&P

Investor A Investor B

EXPORT \ IMPORT DOCUMENTATION

Portfolio of French US dollar deposit
There are 13 standard trade terms as per INTERNATIONAL
COMMERCIAL TERMS (INCOTERMS, 2000)

i.e. EXW, FCA, FAS, FOB, CFR, CIF, CPT, CIP, DAF, DES, DEQ,
DDU, DDP.

 Some commonly used trade terms are :

 FAS (Free alongside Ship) : The seller delivers the goods

alongside the ship – at the named port of shipment – within the
reach of loading device at seller’s expenses. All risks,
responsibility and expenses from that point are to be borne by the
buyer.

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• FOB (Free on Board) / FOBST (Free on Board Stowed and
Trimmed) : The goods are deemed to be delivered when it passes
the ship’s rail at the named port of shipment. All risks and
responsibility passes to the buyer from this point. Buyer is
responsible for ocean freight, insurance & all other expenses after
loading. (Ref: MV TIAN MU SHAN EX- PARADIP – 1999)

• FCA (Free carrier) : The Seller delivers goods to the carrier

nominated by the buyer at the named place. All risks,
responsibility, cost and damage is to be borne by the buyer after
that moment

 CFR (Cost and Freight) : The goods are deemed to be delivered

when it passes the ship’s rail at the named port of shipment,
thereafter all risks and responsibility passes to the buyer. It is
seller’s responsibility to make payment of ocean freight for the
designated discharge port and provide document to the buyer (Re:
MV Caravas Horizon)

 CIF (Cost Insurance & Freight) : The goods are deemed to be

delivered when it passes the ship’s rail at the named port of
shipment, thereafter all risks and responsibility passes to the
buyer. Sellers obligation is to make payment of freight &
Insurance upto named destination port. Used for sea and inland
waterway shipments.

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  CPT (Carriage paid to) : Seller delivers the goods to the carrier
and all risks thereafter passes to the buyer. Seller also makes
payment of freight upto named place of destination.

 CIP (Carriage & Insurance paid to) : Seller delivers the goods to
the carrier and arrange freight and insurance upto named place of
destination. Thereafter all risk passes to the buyer. Unlike CIF,
This term can be used in all type of transport (including
multimode but normally not used in marine transport).

PAYMENT TERMS

Payment Terms: The common payment terms in export are:

􀂾 Advance payment (Payment by Buyer before shipment of goods);
􀂾 Documents against payment (Delivery of shipping documents to
Buyer against payment);
􀂾 Documents against acceptance (Delivery of shipping documents
to Buyer against acceptance by Buyer/its bankers to effect payment
on the agreed date);
• Insurance: Export shipments are usually insured against loss, damage and delay in transit, by cargo
insurance. For international shipments, the carrier's liability is frequently limited by international
agreements. Cargo insurance may be made by either the buyer or the seller, depending on the terms of
sale.

􀂾 Letter of Credit (an arrangement whereby a bank {the

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 Issuing Bank} acting on the instructions of a customer
{the buyer} is to make a payment to the beneficiary {the
seller} or is to accept bills of exchange (drafts) drawn by
the Beneficiary {the seller}. It is, in short, an undertaking
or a guarantee by a bank of payment to the beneficiary
should certain conditions be met).

Documentation

Risks are inherent in both domestic trade and international trade, but
the degree of risk is higher in international trade. Hence, proper
documentation mitigates the risk in international trade. Documentation
must be precise. Slight discrepancies or omissions may prevent
merchandise from being exported, result in exporting firms not getting
paid, or even result in the seizure of the exporter's goods by local or
foreign government customs. Collection documents are subject to
precise time limits and may not be honoured by a bank, if out of date.
Much of the documentation is routine for the freight forwarders or
customs brokers acting on the firm's behalf, but the exporter is
ultimately responsible for the accuracy of the documentation. It is said
that “International Trade is a sale of documents”. It is very important
to clearly understand the documents involved in the transaction to
avoid the risk factors and adhere to the legal obligations.

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 The entire documentation in export trade can be basically divided into
two categories:

A) Pre-shipment documents are those that an exporter has to

generate, authenticate and submit to the concerned authorities and
departments to get the necessary clearances, prior to the actual
shipment of the cargo, so that the cargo can be shipped out with
valid documents. The pre-shipment documents are generally
prepared when the product is ready for export and prior to
shipment.

The standard pre-shipment documents include:

• Customs Invoice
• Packing List
• G R Form (original and duplicate)
• ARE-1 Form (original and duplicate)
• Copy Of Export order
• Letter Of Credit
• Shipping Bill (entire set)
• Export Licence(for notified items)
• Certificate Of Origin
• Certificate Of Inspection
• Any Other Documents (as required in L/C or by Customs)

The post-shipment documents comprise the certified copies of some of

the main pre-shipment documents and certain additional documents to
be generated and compiled by the exporter so that the proof of

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 shipments can be properly presented to the negotiating bank for
collecting the

Export Documents

Post-shipment Documents INCLUDES:

 Payments through L/C or for presentation to the foreign buyer for
collection of payment through the nominated bank.

The standard pre-shipment documents include

• Custom attested invoice
• Custom attested packing list
• Copy of Export Order / Copy Of LC
• Commercial Invoice
• Consular Invoice (If Specified)
• Bill of Lading / Air Way Bill
• Certificate of Origin

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• Certificate of Inspection (If Specified)
• Bill of Exchange (Draft)
• G R Form (Duplicate)
• Any other document specified in Export Order / LC

Customs Formalities

Central Board of Excise and Customs (CBEC) is assigned a number of

tasks, some of which are:
a) Collection of customs duties on imports and exports as per basic
Customs laws (Customs Act, 1962 and Customs Tariff Act, 1975);
b) Enforcement of the various provisions of the Customs Act
governing imports and exports of cargo, baggage, postal articles and
arrival & departure of vessels, air crafts etc.;
c) Discharge of various agency functions and enforcing various
prohibitions and restrictions on imports and exports under the Customs
Act and other allied enactments;
d) Prevention of smuggling including introduction of narcotics drug
trafficking; and

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e) International passenger processing.

CBEC Mission is to achieve excellence in the formulation and

implementation of Customs and Excise initiatives aimed at:

• realising the revenues in a fair, equitable and efficient manner;

• administering the Government's economic, tariff and trade policies
with a practical and pragmatic approach;
• facilitating trade and industry by streamlining and simplifying
Customs and Excise processes and helping Indian business to
enhance its competitiveness;
• creating a climate for voluntary compliance by providing guidance
and building mutual trust;
• combating revenue evasion, commercial frauds and social menace
in an effective manner.
Some of the important documents, procedures and terms are briefly
described below: Customs Invoice: is a regulatory document for
export, to be prepared in prescribed format.
Customs Packing List: is also a regulatory document for export, to be
prepared in prescribed format.
G R Forms: Wherever manual-shipping bill is in force, GR form in
the prescribed format is a mandatory document. These forms are
available from RBI or Authorised Dealers of Commercial Banks.
Under the EDI scheme, the foreign exchange copy of the shipping bill
performs the role of GR forms. In addition, a self declaration form has
to be submitted by the exporter to the bank. Both these documents
perform the function of GR Form.

ARE-1 Form: It is a very important regulatory document prescribed

by CBEC for the Exemption/ Draw back of excise duty. Exporters are

55 | P a g e
exempted from the payment of excise duty, and the exemption can be
availed by two methods. Exporter can pay the excise duty, export the
cargo and draw back the duty paid earlier. Alternatively, the exporter
can export the cargo under Bond i.e. without payment of Excise duty.
In either case, the ARE-1 form formalities have to be completed by the
exporter as a pre-shipment Document. ARE-1 is to be filled in and
submitted to the Excise department at least 24 hrs in advance along
with request for inspection, sealing and certification by the
department. If the export is done by paying duty, then the specified
copies of ARE-1 can be used for Draw Back. In case of EPCG, it is
used for completing the export

obligation given under Bond to the Government, and for discharging

the Bond on such completion.

Custodian: The goods imported into India and exported out of India
are allowed through designated Sea Ports/ Land Custom Stations/
Airports. The goods so imported/ exported are initially deposited in the
custody of Custodian such as:
• Port authorities for goods imported through sea;
• Custodians for goods imported by air-
Airport Authority of India
Air India or STC etc
• For places other than points of landing-
Inland Container Depot (ICD)
Container Freight Station (CFS)

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 BIBLIOGRAPHY

I am greatly thankful to the whole department for their valuable

guidance to me in this project.

Also taken help from:

 Google
 Wikipedia
 Heinz P. Bloch
 Financial Market guide
 www.mmtclimited.com

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 www.stocksevaluation.com

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