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USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD JAIIB_CAIIB_Prep

USE CODE RAJEEV TO GET MAXIMUM DISCOUNT ON OLIVEBOARD JAIIB_CAIIB_Prep
Unit 1 Exchange Rates Unit 2 Basics of Forex Unit 3 Correspondent
and Forex Business Derivatives Banking and NRI Accounts

Unit 4 Documentary Unit 5 Facilities for Unit 6 Risks in Foreign

Letters of Credit Exporters and Importers Trade-Role of ECGC

Unit 7 Exim Bank -

Role, Functions and
Facilities
Module A: International Banking
UNIT 1:-Exchange Rates and FOREX Business
RBI/FEDAI Guidelines
The Reserve Bank of India issues Authorized Dealers' (AD) licenses to banks and all-India
financial institutions to undertake foreign exchange transactions in India. At present there are over 94
ADs[June 2022] which include all public sector banks, foreign and a large number of
private banks, a few all-India financial institutions and a few Scheduled cooperative
banks.
In terms of RBI directives, all authorized dealers are members of
FEDAI and it is mandatory for them to follow the
guidelines/directives issued by FEDAI
 Private Sector Banks
Sl No Bank Name LEI Number
1 AXIS Bank Limited 549300HVNWMJPOFVNI41
2 Bandhan Bank Limited 335800Q13QAC32IOCH33
3 City Union Bank Limited 33580024M7FWA847JI64
4 CSB Bank Limited 335800R8M2WRZKDHJC88
5 DCB Bank Limited 549300HLUOQ4ZGINVI30
6 HDFC Bank Limited 335800ZQ6I4E2JXENC50
7 ICICI Bank Limited R7RX8ER1V4666J8D1I38
8 IDBI Bank Ltd 335800UL1OJYBFEAPY30
9 IDFC FIRST Bank Limited 335800SBNAPYVT1D2K13
10 IndusInd Bank Limited 335800JDVJ8HSXG9G512
11 Karnataka Bank Limited 335800G1GTTVASBXVW10
12 Kotak Mahindra Bank Limited 335800E6GTTXKHXE2I75
13 RBL Bank Limited 335800JQTGMLAAQL1F37
14 Tamilnad Mercantile Bank Limited 335800AYAN6LJY14L887

15 The Dhanalakshmi Bank Limited 335800CKSGJELHJHQ768

16 The Federal Bank Limited 335800J8VWGE2HGWF417
17 The Jammu & Kashmir Bank Limited 3358003EPKRYNVG21Y80

18 The Karur Vysya Bank Limited 335800GFMDHTPWI6JP97

19 The South Indian Bank Limited 3358003CCMTPZUJOKC45

20 YES Bank Limited 335800X6WKDDXJUSFZ86
The Legal Entity Identifier (LEI) is a 20-character alpha-numeric code used to uniquely
identify parties to financial transactions worldwide.
The RBI also issues Money Changer licenses to a large number of
established firms, companies, hotel, shops, etc., to deal in foreign
currency notes, coins and traveler's cheque, to facilitate
encashment foreign currency for foreign tourists. Entities
authorized to buy and sell foreign currency notes, coins and
traveler's cheque are called Full Fledged Money Changers
(FFMCs)

While those authorized only to buy are called Restricted Money

Changers (RMCs).
 Exchange Arithmetic

All foreign exchange calculations have to be worked out with extreme

care and accuracy and the decimal point has also to be correctly
placed. Constant check is also required to minimize the risk of mistake,
as the markets work on very thin margins.
An error in one quote may erode earnings from several
trades/transactions.
❖ Chain Rule
❖ It is used in attaining a comparison or ratio between two quantities
linked together through another or other quantities and consists of
a series of equations.
❖ Per Cent and Per Mille
❖ A percentage (%) is a proportion per hundred, e.g., 1% is one part
in every hundred parts such as Rupee 1 per Rupees 100, while per
mille means per thousand, e.g., 1 per mille is one part in every
thousand, such as Rupee 1 per Rupees 1,000.
Bid Means Buying Rate The cross rate should equal the ratio of the two corresponding
Ask Means Selling Rate pairs, therefore, EUR/GBP = EUR/USD divided by
GBP/USD, just like GBP/CHF = GBP/USD x USD/CHF. For
example, suppose we know the bid and offer of AUD/USD
and NZD/USD, and we want to profit from AUD/NZD.

(X/Z)bid =(X/Y)bid*(Y/Z)bid
(X/Z)Ask =(X/Y)Ask*(Y/Z)Ask
 Value Date
This is the term used to define the date on which a payment of funds or an
entry to an account becomes actually effective and/or subjected to interest, if
any.
In the case of payments on Telegraphic Transfers (TT) the value date is
usually the same in both centers
Arbitrage in Exchange
Arbitrages consist of the simultaneous buying and selling of a commodity or
currency in two or more markets to take advantage of temporary
discrepancies in prices.
RBI/FEDAI Guidelines
The Reserve Bank of India issues Authorized Dealers' (AD) licenses to banks and all-India
financial institutions to undertake foreign exchange transactions in India. At present there are over 94
ADs[June 2022] which include all public sector banks, foreign and a large number of
private banks, a few all-India financial institutions and a few Scheduled cooperative
banks.
On 03-10-2022 Your Exporter Customer tenders an export bill for USD$500000 drawn 120 Days
from the date of shipment date ,shipment date ;03-10-2022 due date 01-02-2023 compute applicable
rate presuming
❑ Exchange margin: 0.15%
❑ Spot rate=68.14/15 and premium spot for Jan 45/46 paise
❑ Rate to quoted nearest 0.25 paisa and rupee amount rounded off
❑ Applicable interest at 8.50% for post shipment export finance
Calculation upto 180
amount daysto the customer
payable
❑ Commission on bills purchased 0.0625% to be charged
account upfront.
❑ Calculation of bill buying rate and amount 68.4875*500000
=34243750
❑ Spot rate; Rs. 68.1400
=Interest of 120 Days @8.5%
❑ Less margin; 68.1400*0.15% = 0.1022 34243750*8.50%*120/365= 956949
❑ 68.1400-0.1022= Rs. 68.0378 Commission @0.0625%=21402
❑ Add premium= 68.0375+0.4500 Amount payable :-34243750-956949-
❑ Bill Buying Rate: 68.4875 21402=33265399
 Private Sector Banks
Sl No Bank Name LEI Number
1 AXIS Bank Limited 549300HVNWMJPOFVNI41
2 Bandhan Bank Limited 335800Q13QAC32IOCH33
3 City Union Bank Limited 33580024M7FWA847JI64
4 CSB Bank Limited 335800R8M2WRZKDHJC88
5 DCB Bank Limited 549300HLUOQ4ZGINVI30
6 HDFC Bank Limited 335800ZQ6I4E2JXENC50
7 ICICI Bank Limited R7RX8ER1V4666J8D1I38
8 IDBI Bank Ltd 335800UL1OJYBFEAPY30
9 IDFC FIRST Bank Limited 335800SBNAPYVT1D2K13
10 IndusInd Bank Limited 335800JDVJ8HSXG9G512
11 Karnataka Bank Limited 335800G1GTTVASBXVW10
12 Kotak Mahindra Bank Limited 335800E6GTTXKHXE2I75
13 RBL Bank Limited 335800JQTGMLAAQL1F37
14 Tamilnad Mercantile Bank Limited 335800AYAN6LJY14L887

15 The Dhanalakshmi Bank Limited 335800CKSGJELHJHQ768

16 The Federal Bank Limited 335800J8VWGE2HGWF417
17 The Jammu & Kashmir Bank Limited 3358003EPKRYNVG21Y80

18 The Karur Vysya Bank Limited 335800GFMDHTPWI6JP97

19 The South Indian Bank Limited 3358003CCMTPZUJOKC45

20 YES Bank Limited 335800X6WKDDXJUSFZ86
The Legal Entity Identifier (LEI) is a 20-character alpha-numeric code used to uniquely
identify parties to financial transactions worldwide.
The RBI also issues Money Changer licenses to a large number of established
firms, companies, hotel, shops, etc., to deal in foreign currency notes, coins
and traveler's cheque, to facilitate encashment foreign currency for foreign
tourists.
Entities authorized to buy and sell foreign currency notes, coins and
traveler's cheque are called Full Fledged Money Changers (FFMCs)

While those authorized only to buy are called Restricted Money Changers
(RMCs).
In terms of RBI directives, all authorized dealers are members of
FEDAI and it is mandatory for them to follow the
guidelines/directives issued by FEDAI
What is the Liberalized Remittance Scheme (LRS) of USD
2,50,000 ?
Ans. Under the Liberalized Remittance Scheme, all resident
individuals, including minors, are allowed to freely remit up to
USD 2,50,000 per financial year (April – March) for any
permissible current or capital account transaction or a
combination of both.
Further, resident individuals can avail of foreign exchange facility for the purposes
mentioned in Para 1 of Schedule III of FEMA Amendment Rules 2015, dated May 26,
2015, within the limit of USD 2,50,000 only.

The Scheme was introduced on February 4, 2004, with a limit of USD 25,000.
The LRS limit has been revised in stages consistent with prevailing macro and micro
economic conditions.

In case of remitter being a minor, the LRS declaration form must be countersigned by
the minor’s natural guardian. The Scheme is not available to corporates, partnership
firms, HUF, Trusts etc.
The Union Home Ministry has amended certain rules related to the Foreign
Contribution (Regulation) Act (FCRA) .
In a notification, the govt also said if the amount exceeds, the individuals will now have
90 days to inform the government instead of 30 days earlier.
 Exchange Rate Mechanism
Types and Calculation
Due to the vastness of the market, operating in different time zones, most of the FOREX
deals are done on SPOT basis, meaning thereby that the delivery of the funds takes place on
the second working day following the date of deal/contract it is Also Known as
"value date' or 'settlement date
 The delivery of FX deals can be settled in one or more of the following ways
Ready or Cash
Settlement of funds takes place on the same day (date of deal), e.g., if the date of
Ready/Cash deal is 3 October 2016 (Monday), settlement date will also be 3 October 2016.
Tom
Settlement of funds takes place on the next working day of the date of deal, e.g., if the date
of TOM deal 3 October 2016 (Monday), settlement date would be 4 October 2016 (Tuesday,
provided it is a working day for the markets dealing as well as where currency is to be settled).
If Tuesday is a holiday, in either of the 2 countries, the settlement date will be next common
working day in both the countries. Intervening Saturdays and Sundays will also postpone the
settlement date to next working day
 SPOT
Settlement of funds takes place on the second working day after/following the date of
contract/deal, e.g., if the date of Spot deal is 3 October 2016 (Monday), settlement date
will be 5 October, 2016. (Presuming all markets are working on 3, 4 and 5 October 2016).

If not, it will the next working day in both the countries. Intervening Saturdays and
Sundays will also postpone the settlement date to next working day.
 Forward
Delivery of funds takes place on any day after Spot date, e.g., if the date of
forward deal is 3 October 2016 (Monday), for value settlement date 30 October
2016 or 30 November 2016, it is a forward deal.
❑ (i)Forward Point Let us suppose that spot rate of US$/Euro
is Spot Euro 1= US$ 1.3180
❑ The exchange rate three months forward is
❑ 3 months Euro 1= US $1.3330
❑ The difference of 150 points referred to is the forward point
2
C
 2

In simple words, the process of converting foreign

currency liability of the exporter into Indian Rupee
liability is called 'crystallization of foreign currency
export bills'
C
D
Forward rate = spot rate (+) ________ (−−) ____________:?
(a) discount, commission
(b) premium, discount
(c) premium, commission B
(d) discount, premium

In general, a spot rate refers to the current price or bond

yield, while a forward rate refers to the price or yield for
the same product or instrument at some point in the
future
In India, exchange rates are decided by whom?
(a) RBI (b) FEDAI (c) IBA (d) Market forces (e) None of these

TASK OF THE DAY