CHAPTER V

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Foreign Exchange Transactions

Foreign Exchange means foreign currency and it includes any instrument drawn, accepted, made
or issued under clause (13), Article 16 of the Bangladesh Bank Order, 1972. All deposits, credits
and balances payable in any foreign currency and draft, travelers cheque, letter of credit and bill
of exchange expressed or drawn in Bangladeshi currency but payable in any foreign currencies.

Bangladesh Bank issues Authorized Dealer (AD) license by observing the bank’s performance
and also the customers associated with the bank for conducting foreign dealings. So, First
Security Bank Ltd. Mohakhali Branch is an authorized dealer.

Background Of Bank’s Involvement

Banks play a vital role by minimizing the risk of two parties, namely buyer and seller. In fact
without the help of banks we cannot think about a congenial international trade environment.
Now the question comes how banks help international trade. We know that in a local trade there
is a chance to know about each other. But in international trade the involved parties stay two
distant places. For a buyer the following risks are involved-

 Risk of non-delivery of goods.

 Risk of receiving sub standard goods.
 Risk of fraud in goods.

For the seller the following risk is involved-

 Risk of non-payment.
To reduce the aforesaid risks an independent system is introduced which will safeguard the buyer
as well as seller in an international trade. Actually banks play due role by getting into two parties
and bind them.

Foreign
Exchange

Remittance
Import Section Export Section
Section

The achievement of first Security Bank in the area of foreign exchange business has been quite
phenomenal. The Bank has been providing services to import and export trade and for
repatriation of hard-earned foreign exchange of Bangladeshis living and working abroad and has,
by now, consolidated its position in these areas.
Growth of Foreign Exchange Business
Over the last 18 years, the Bank has made a pace setting progress in handling foreign trade and
foreign exchange business. The total foreign exchange business stood at Taka 5739.00million as
against Taka 3737.1 million in the preceding year registering an increase of 49.5 percent.
Import Section
In case of Import, the importers are asked by their exporters to open a letter of credit. So that
their payment against goods is ensured.
Letter Of Credit (L/C)
Letter of Credit (L/C) is a payment guarantee to the seller by the buyer’s bank. It is in fact, a
Credit Contract whereby the buyer’s bank is committed (on behalf of the buyer) to place an
agreed amount of money at the seller’s disposal under some agreed conditions. If the conditions
of the credit do not require for presentation of specified documents, it is called Clean Credit. On
the contrary, if the presentation of specified documents is obligatory, the credit is called a
Documentary Credit.
Buyers and sellers enter into contracts for buying and selling goods/ services and the buyer
instructs his bank to issue L/C in favour of the seller. Here bank assumes fiduciary function
between the buyer and seller.

Parties to Letter Of Credit

The following parties are involved to a letter of credit, namely -
Obligatory Parties are
 Importer/ Buyer/ Applicant
 Opening Bank/ Issuing bank
 Advising Bank/ Notifying Bank
 Exporter/ Seller/ Beneficiary
Optional Parties (In case of need) are
 Negotiating Bank
 Confirming Bank
 Paying/ Reimbursing bank
Import Procedure
An importer is required to have the following formalities to import the goods through First
Security Ban Ltd. –
 An account with First Security Bank Ltd. Mohakhali Branch.
 Import Registration Certificate (IRC).
 Tax Paying Identification (TIN) Number
 Proforma Invoice/ Indent
 Membership Certificate
 LCA (Letter of Credit Application) form duly attested
 One set of IMP Form
 Insurance Cover note with money receipt
 Trade License
 Others
Import Mechanism
To import, a person should be competent to be an ‘Importer’. According to Import and Export
Control Act, 1950 the Office of Chief Controller of Import and Export provides the registration
(IRC) to the importer. After obtaining this, the person has to secure a letter of credit
authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer.
He is the person who requests or instructs the opening bank to open an L/C. He is also called
opener or applicant of the credit.
Importer’s Application for L/C margin.

To have an import L/C margin, an importer submits an application to the Foreign Exchange wing
of First Security Bank Ltd. Mohakhali Branch furnishing the followings-

 Full particulars of bank account

 Nature of business
 Required amount of limit
 Payment terms and conditions
 Goods to be imported
 Offered security
 Repayment schedule

A credit Officer scrutinizes this application and accordingly prepares a proposal (CLP) and
forwards it to the Head Office Credit Committee (HOCC). The Committee, if satisfied, sanctions
the margin and returns back to the branch. Thus the importer is entitled for the margin.
L/C Application
The party has to fulfill the L/C form, submitted by the bank.

Securitization of L/C Application

When the party submits the fulfilled L/C form, import department scrutinizes it and transmits the
L/C advice through telex, fax or mail.

Presentation of the Documents

The seller being satisfied with the terms and the conditions of the credit proceeds to dispatch the
required goods to the buyer. Then he 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 the documents, the negotiating bank then checks the documents against the credit. If the
documents are found in order, the bank will pay, accept or negotiate to FSBL. Then FSBL
checks the documents. The usual documents are-

 Invoice
 Bill of lading
 Certificate of origin
 Packing list
 Shipping advice
 Non negotiable copy of bill of lading
 Bill of exchange
 Pre-shipment inspection report
 Shipment certificate.

Lodgment of Shipping Documents

During scrutiny, if the documents are in order, the branch then lodges the documents in PAD.
The following steps are involved in lodgment –

 First all the particulars of the documents are entered in the PAD (Payment against
Document) register and PAD No. Seal is given on all the copies of the received
documents.
 Convert the foreign currency into Bangladeshi currency.
 Reverse the contingent liability and entry made in the liability register.
 Prepare lodgment voucher

After realizing the charges, the shipping documents are then stamped with PAD number &
entered in the PAD register. Intimation is given to the customer calling on the bank’s counter
requesting retirement of the shipping documents.

Retirement of Documents
The importer receives the intimation and gives necessary instruction to the bank for retirement of
the bills or for the disposal of the shipping documents to release the imported goods from the
customs authority. The importer may instruct the bank to retire the documents by debiting his
account with the bank or may ask for investment, which is Investment against Trust Receipt
(TR). First Security Bank Ltd. Mohakhali Branch calls this Mura Post Investment (MPI).
Payment Procedure of Import Documents

This is the most sensitive task of the Import Department. The officials have to be very much
careful while making payment. This task constitutes the following-

Date of Payment: Usually payment is made within seven days after the documents have been
received. If the payment is become deferred, the negotiating bank may claim Profit for making
delay.

Preparing Sale Memo: A sale memo is made at B.C rate to the customer. As the T.T & O.D rate
is paid to the ID, the difference between these two rates is exchange trading. Finally, an Inter
Branch Exchange Trading Credit Advice is sent to ID.

Requisition for the Foreign Currency: For arranging necessary fund for payment, a requisition is
sent to the International Department.

Transmission of Message: Message is transmitted to the correspondent bank ensuring that

payment is being made.
Export Section

Foreign Exchange Regulation Act, 1947 nobody can export by post and otherwise than by post
any goods either directly or indirectly to any place outside Bangladesh, unless a declaration is
furnished by the exporter to the collector of customs or to such other person as the Bangladesh
Bank (BB) may specify in this behalf that foreign exchange representing the full export value of
the goods has been or will be disposed of in a manner and within a period specified by BB.
Export section deals with two types of L/C that are as follows-

Export Section

Back-to-Back L/C Export L/C

Back-To-Back Letter Of Credit

Back-to-back L/C is a secondary L/C (New Import L/C) opened by the seller’s bank based on
the original L/C (Master L/C) to purchase the raw materials and accessories for
manufacturing of the export product (s) required by the seller.

Under the ‘Back to Back’ concept, the seller as the Beneficiary of the master L/C offer it as a
‘security’ to the advising Bank for the issuance of the second L/C. The beneficiary of the Back-
to-Back L/C may be located inside or outside the original beneficiary’s country. In case of a
Back-to-Back L/C, the bank takes no cash security (margin). Bank liens the Master L/C and the
drawn bill are an Issuance/ Time bill.

Documents Required For Opening a Back-To-Back L/C

Master L/C

 Proforma Invoice or Indent

 Insurance Cover Note with money receipt
 Valid Bonded Warehouse License

Export Letter Of Credit

The other type of L/C facility offered by Khatungonj Corporate Branch is Export L/C.
Bangladesh exports a large quantity of goods and services to foreign households. Readymade
textile garments (both knitted and wove), jute, jute-made products, frozen shrimps, tea are the
main goods that Bangladeshi exporters exports to foreign countries. Garments Sector is the
largest sector that exports the lion share of the country’s export. Bangladesh exports most of its
readymade garments products to USA and European Community (EC) countries. Bangladesh
exports about 40 % of its readymade garments products to USA. Most of the exporters who
export through Khatungonj Corporate Branch are readymade garment exporters. They open L/Cs
in this branch to export their goods, which they open against the import L/Cs opened by their
foreign importers.

Export Registration Certificate (ERC): The exports from Bangladesh are subject to export trade
control exercised by the Ministry of Commerce through Chief Controller of Imports & Exports
(CCI&E). No exporter is allowed to export any commodity permissible for export from
Bangladesh unless he is registered with CCI&E and holds valid ERC. The ERC is required to be
renewed every year. The ERC number is to be incorporated on EXP (Export) Forms and others
documents connected with exports.

The EXP Form: After having the registration, the exporter applies to First Security Bank Ltd.
Khatungonj Branch with the Trade License, ERC and the Certificate from the concerned
Government Organization to get the EXP Form. If the branch is satisfied, an EXP Form is issued
to the exporter.

Securing The Order: Upon registration, the exporter may proceed to secure the export order.
Contracting the buyers directly through correspondence can do this.

Signing Of The Contract: While making a contract, the following points are to be mentioned: a)
Description of the goods; b) Quantity of the commodity; c) Price of the commodity; d)
Shipment; e) Insurance and marks; f) Inspection, and g) Arbitration.
Procuring The Materials: After making the deal and on having the L/C opened in his favor, the
next step for the exporter is set about the task of procuring or manufacturing the contracted
merchandise.

Registration of Sale: This is needed when the proposed items to be exported are raw jute and
jute-made goods.

Shipment Of Goods: The following documents are normally involved at the stage of shipment:
(a) EXP From, (b) photocopy of registration certificate, (c) photocopy of contract, (d) photocopy
of the L/C, (e) customs copy of ERF Form for shipment of jute-made goods and EPC Form for
raw jute, (f) freight certificate from the bank in case of payment of the freight if the port of
lading is involved, (g) railway receipt, berg receipt or truck receipt, (h) shipping instructions, and
(i) insurance policy.

Procedure for FDBP:

An officer scrutinizes the documents. if they are all right then the bank purchases them. It s
known as foreign documentary bills purchase. For this the bank takes charges from client’s a/c.

Foreign Documentary Bills for Collection (FDBC):

Bank forwards the documents for collection. Then the party gets the payment when the issuing
bank gives payment.

Advising L/C:
When export L/C is transmitted to the bank for advising the banks send an Advising Letter to the
beneficiary depicting that L/C has been issued.
Recommendations
A) Introduction of advanced banking software
As there are severe limitations in the present PC bank software that is quite inadequate
in providing speedy services both to he customer and internal uses of the bank. Therefore
the concerned authorities should consider replacing the PC bank system with more advanced
banking software like the ones which are being used in he foreign banks. It is also cost
effective for the management to introduce new banking software as it has all
the modem banking facilities and will actually prove effective in his long run for the bank
when it considers establishing ATM and other automated banking facilities.
B) Formal recruitment
Strong and an effective recruitment system should be exercised so that the right people are
recruited at the right job. As already mentioned earlier, other than the PO’s there are major flaws
in the recruitment of the staffs from other banks during the embryonic stage. But now as the bank
is expanding, it must focus on attracting getting and retaining qualified personnel for filing up its
positions. It is worth spending more on attracting qualified human resources rather than getting
the wrong people in the wrong positions.
C) Offering Attractive Remuneration Package
FSBL is offering very unimpressive and nit capable to attract quality personnel to fill up its
positions. Many skilled and devoted officers of the bank are depressed with their positions.
Currently the management is trying to attract more MBA’s in future. Bit the bank must redesign
its compensation package to attract quality human resources particularly qualified MBA’s for the
bank. Since the foreign banks pay doubles that of FSBL and other private banks also have higher
scale than FSBL, it is high time that the management should consider revising the remuneration
package in order to attract quality human resources.
D) Delegation of authority
As a part of introduction participates management system in the organization there should be a
gradual delegation of authority in order to develop future leaders with in the organization.
Authority should be delegated gradually to a certain extent at the branch level for speedy
disposal of financial matters and providing faster services. Moreover, on a decentralized
organization there will be both top down and bottom up communication and therefore the
communication channel with in he company becomes stronger. The top management also comes
to know better ideas from the lower and many ideas from there can be implemented for the
development of the bank.
E) Employee orientation or more staff meeting
All the departments in the head office as well as in the branches should have more staff meetings
and inter departmental meetings. This would allow each department to monitor its on going
progress and identify the hindrances or the hurdles while achieving their targets or carrying out
the activities. Through staff meetings at all start of the management would make a concentrate
effort off all the employees to achieve their goals and which intern would allow the organization
to achieve their target.
Departmental stuff meting can be held weakly of fort nightly and this would allow in charge of
each department to identify the problem areas and corrective actions can be taken immediately or
can be informed to the higher authorities. The process of pro-active strategies can be
implemented through regular staff meeting instead of pursuing a reactive strategy where each
department waits for the feedback from their higher authorities.
F) Advertisement & Promotion:
An aggressive marketing campaign such as advertisement in the newspapers and magazines,
more billboards and neon signs, publicity messages and promotional campaigns are required.
FSBL should pursue an aggressive advertising campaign in order to build up a strong image and
reputation among the potential customer. It must give up the idea of maintain a low profile in the
market.
FSBL can also pursue promotional campaigns with its customer particularly the corporate clients
in order to built up a stronger rapport with them. Television advertisement is also a major
method for attracting the potential customers. As it is a new bank, a strategy of exposing the
bank to the public must be taken so that the general people are aware about the emergence and
the growth of the bank.
G) Improvement of service quality
This is one of the major setbacks for FBSL as it is ahs failed to provide better services to its
customers compared to the contemporary banks and as well as the foreign banks. The service is
worst in the General banking division where the retain customers are not getting the service. The
management must take steps to improve this situation. Adequate people with the proper training
and skill should be place at this wing of the bank. More automatons should be done in the care
counters such as providing individual monitors to the tellers so that they can check the balances
in a n account instantly rather than sending the checks backward.

Moreover, the bank should install scanning machines in the cast counters. It will save a lot of
time in the counters because signatures can be verified instantly though the scanners instead of
searching the ID card manually. Enhancement of cash withdrawal limit from the counters is
necessary. Though recently, the cast withdrawal limit has been extended up to one lac taka but
still this is not sufficient in the Principal branch, as it is the busiest branch of the bank.

The account opening booths must be placed with qualified and impressive personnel as they
expose the first image of the bank to a new customer. The bank statement must be sent timely to
the customer. Instead of keeping the statements in the office for a week, the statement should be
generated immediately after the end of a month and send by mail to the respective customer.
Currently this is done a bit late and many customers don’t get their statements on time.
H) Storage facilities
The present storage facilities in the Mohakhali Branch are extremely inadequate and the situation
is quite similar in the head office. The management must consider improving the storage
facilities of the bank by hiring or renting new spaces for warehousing or storing papers or
expanding the present office space of the head office and the Mohakhali branch. This is may be a
temporary solution but in the next few years if the present volume of business continues the
Principal Branch and the Head Office has to be shifted from its present locations.

I) Establishing employee training facility

FSBL does not have any training institute of its own. As training is a never ending process and it
is important for increasing the capability of the employees, the authority takes help of the senior
executives to train their employees which is quite insufficient. Establishment of own training
facility will increase the potentiality of the employees.