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SR. No 1 1.1 2 3 4 5 6 7 7.1 7.2 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 33.1 33.2 TOPICS Introduction to Foreign Exchange International Trade Imports Trade/Fema Guidelines Importer Exporter Code No (IEC) Valid Import Categories of Importers Classifications of Items Types of Licences Licences Issued for Exporter Promotion Licences Issued for Domestic Use Some of the important features/conditions of Licences Participants in Foreign Exchange Market Exchange Rate System Function of the Foreign Exchange market Factors Influencing the Flow of Foreign Exchange Need for Foreign Exchange Foreign Exchange Market Overview Foreign Exchange Risk Exchange Control Administration About Foreign Exchange Market Major Bifurcations Authorised Person Letter of Credit Foreign Exchange Dealers Association of India [FEDAI] Overview Exchange Rate Mechanism Purchase And Sale Transaction Types of Rates Computation Internal System Uniform Rate Quotation Fine Rates/Finer Rates/Superfiner Rates Exim Policy Fema Guidelines Export of Foreign Currency Factors affecting Exchange Rates Expactation of the Foreign Exchange Market Hedging Tools Forward Contract Option 2 4 4 6 7 7 8 9 9 9 10 10 12 13 16 17 18 18 18 19 19 20 20 21 21 24 25 26 27 28 30 31 33 35 36 37 38 38 45

34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

Types of Options Directory of Banks in India Foreign Exchange Reserve Excess Reserves Currency Exchange Currency Exchange Converter Using a Credit Card To Exchange Currency Loans in Foreign Exchange General Operational Policies General Policy Questioners related NRI/opening account/Foreign Exchange Questioners related Foreign Exchange/Foreign trip/spending money in foreign country/bring money to India/gifts Union Currency Features Authorized Branches Types of Margin Position Maintaining Branches Treasury Products And Services

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International trade is the movement of goods and services from one country to another. The distribution of natural resources is not uniform across the global countries concentrate on providing products and services in which they enjoy relatives advantages arising out of differences in resources, cost, or technology .The comparative economic advantage enjoyed by countries in the production certain commodities, depending on their internal resources; also result surplus of those commodities, while the countrys requirement of commodities in deficit are met by supply from outside. This leads to interdependence amongst nations and is the genesis of international trade. A typical international trade transaction involves a cross border sale and payment .The seller supplies the goods and services to the buyer and the buyers in turn pays for the goods and services received from the seller .The payment for the international sale/purchase amongst countries each with their sovereign currency necessitates the supplier and buyer agreeing to settle the transaction in anyone currency. International trade therefore is one of the primary reasons for the inflow and outflow of foreign exchange.

Foreign Exchange:
Foreign exchange as defined in Foreign Exchange Management Act 1999 means foreign currency and include 1) All deposits, credits, balance payable in any foreign currency. 2) Drafts, travelers cheques, letters of credit and bills of exchange expressed or drawn in Indian currency and payable in foreign exchange. 3) Drafts, travelers cheques, letter of credit or bill of exchange drawn banks, institution or person outside India but payable in Indian currency.

Foreign exchange in simple terms refers to the currencies of other countries. Foreign exchange means the claims of residents of one country to the foreign currency payable abroad. An Indian exporting goods to USA dollars will receive the payment in US dollars. The US dollars are foreign exchange to India.

The importance of foreign exchange is described in brief as under:1. Foreign exchange reserves shows the financial strength and the stage of development of the economy. 2. The acceptance of currency at a predetermined rate makes the international trade easy. 3. The foreign exchange ratio shows direct relationship between the prices of the commodities in the national and international market. 4. The foreign exchange balances of a country directly affect the rates of exchange. A hard currency nation has stability in foreign exchange rate. 5. The rising foreign exchange balances of a nation increases its credit worthless in the international capital market.

Foreign Exchange does not involve trade and services alone, but also includes external borrowing and investment .The countrys external receipts and payment can be classified broadly under 1) Current Account

2) Capital Account

1) Current Account:
Current account is divided into two types Merchandise trade and Invisibles. Merchandise Trade: Defined as comprises of export and import of goods and services Invisibles: Refers to current international payment for other than merchandise trade. Example: Travel, transportation, interest.

2) Capital Account:
Capital account means include transfer connected with external borrowings, external investment of divestments. Current Account transaction means a transaction other than a capital account transaction.

Imports Trade / FEMA guidelines

Introduction: Import is defined as bringing into India any item by sea, land, air or through electronic media. Control over import of goods into India is exercised by the Director General of Foreign Trade (DGFT) l under the Ministry of Commerce, Government of India. The policy enunciated by this Authority is made available to the public through the ExportImport (EXIM) Policy announced from time to time. Earlier the Exim Policy used to be announced annually. However, w.e.f. 1.4.1992, the Govt of India comes out with Exim policy valid for 5 years period to afford continuity and stability. The present policy is effective from 1.4.2002 to 31.3.2007 subject to the amendments made by means of notifications published I the Gazette of India from time to time. The procedure to be followed in change I the policy or the procedure is informed to the public through Public Notices,Amendment Orders etc. A.P. (DIR Series) Circular No.9 dated 24.8.2000 of FEMA 1999 published by RBI details the various FEMA Regulations pertaining to release of foreign exchange for

import payments. Subsequent amendments are also made through A.P. (DIR Series) circular issued from time to time. Handling of import business should also be in compliance with FEDAI guidelines credit norms and internal operational instructions of the Bank.

IMPORTER - EXPORTER CODE NO. (IEC) The importer must possess an IMPORTER-EXPORTER CODE NUMBER allotted by DGFT. Customs Authorities will not allow any person to import or export goods into or from India unless he holds a valid IEC number (unless exempted from obtaining IEC, under provisions of the Exim Policy). For details, please refer para 2A, Chapter 2 of Book of instructions of Exports)

Trade Control Provisions

VALID IMPORT Import is considered as valid if the following conditions among others are fulfilled: 1. Shipment/dispatch of the goods from the supplying country takes place within the validity period of the licence/Customs Clearance Permit. 2. Description, quantity, quality and value should be as per licencing conditions, if the imports have taken place under licence. The item imported is in accordance with the Exim policy as stated in ITC (HS) classification of import items. 3. Compliance of the terms and conditions contained the licence/ Customes Clearance Permit and the EXIM Policy and Procedures in regard to the item and other connected matters.

Importers are broadly classified as under: 1. Actual user importer 2. Stock and sale importer 3. Private importer For the purpose of licensing, importers are divided into the following broad categories:


Actual users a) b) Industrial (AU (I)) Non-industrial (AU (NI))


Exporters holding registration cum membership certificate (RCMC) a) Manufacturer Exporters b) Merchant Exporter

Actual User means an importer who utilizes the imported goods for himself may be industrial or non-industrial. Actual user (Industrial) means a person who utilizes the imported goods for manufacturing in his own Industrial unit or manufacturing in his own Industrial unit or manufacturing for his own sue in another Industrial unit including a jobbing unit. Actual user (Non Industrial) means a person who utilises the imported goods for his own use in: i. Any commercial establishment carrying on any business, trade or profession or ii. Any laboratory, Scientific or Research and Development Institution or other Educational Institution or iii. Any service Industry (includes an Individual, firm, society, company, corporation or any other legal person)

Registration cum membership certificate (RCMC) means a Certificate issued by any Export Promotion Council, Commodity Board or other registering authority designated by Government of the purposes of export promotion, for Export Houses, Trading Houses, Star Trading Houses and Super Star Trading Houses, RCMC will be issued b Federation of Indian Export Organisations (FIEO).

Manufacturer Exporter means a person who manufactures goods and exports or intends to export such goods. Merchant Exporter means a person engaged in trading activity and exporting or intends to export such goods.

Classification of Items
For the purpose of import, items are classified as 1. Prohibited Items 2. Restricted Items 3. Free Items Imports not permitted Against licence/ as per Public Notice Freely importable

As per the Exim policy 2002-2007, the items are broadly classified into 98 categories laid down in the respective chapters of ITC (HS) classification of Export/ import. The policy/ conditions regarding individual items are laid down against individual items.

Types of Licences
Categories of Licences Present Exim Policy consists of two types of licences: a) Licences issued for export Promotion

b) Licences issued for Domestic use.


Licences Issued for Export Promotion

In this case import licences are granted coupled with export obligation giving concessional rate of duty or exemption from payment of duty to merchant exporters and manufacturer exporter. The purpose of this licence is to enhance competitiveness of export product. The items covered by these licences may be in the Freely Permissible category or Restricted category. The common licences covered under this category are EPCG Licence, Advance Licence etc.

b) Licences Issued for Domestic Use In this case, import licence means a licence granted specifically for import of goods which are subject to Import Control. Import Licences are issued by Regional Offices authorized under the Act or the Rules and Orders made there under or under the Policy. Import of goods under a licence granted would be subject to conditions listed in the licence and also the provisions of Export Import Policy of the period in which it is issued.

Some of the important features/ conditions of licences a) List of items permitted for import: Every licence is valid for import of only specified commodities. Hence, every licence mentions the name or category of goods which can be import under that licence. This is normally mentioned in the body of licence and/ or a separate sheet annexed to the licence. b) Validity of Licence: Every licence shall be valid for the period of validity specified in the licence. c) Licensing period: Normally a licence is issued subject to the provisions of Policy applicable as on date of issue of the licence. However to avoid confusion, licence clearly mentions the licensing period (during which it is issued) so that the licence can be operated according to the provisions of that particular Policy period. d) Signature of issuing authority: Every licence including the annexures attached to the licence is signed by the issuing authority. Similarly, any additional conditions included or deleted are properly authenticated.


e) Security seal: Every licence bears the security seal (similar to postal seal) of the office of issue. This seal is normally affixed above or near the signature of issuing authority. Such seal is also to be affixed on all annexures and at all palaces of alterations. f) Specific conditions of licences: Normally every licence bears conditions of its issuance and import. These conditions may be specified on the licence itself or man be annexed to licence. When licences are issued against foreign credits, the conditions applicable to the licence are referred to in the body of licence. Every annexure to the licence is referred to in the body of licences and they are signed and sealed by the issuing authorities. All licences must be use/ operated subject to such conditions/ provisions.

g) Quantity of goods: At times licences stipulate the specific quantity of goods that can be imported within the overall value of licence. If licences are issued for import of multiple commodities, they many specify the maximum quantity allowed for import of each commodity (and also of specification, if applicable). They may even restrict the quantity of a specified commodity to certain percentage of licence value or a specific value. h) Value of licence: As per the present rules Import Licences issued under various provision of the policy indicate the value in Indian Rupees and in foreign currency at the exchange rate prevailing on the date of issue of the licence. Licence where export obligation is imposed, indicates value of export obligation both in free convertible currency and Indian Rupees equivalent thereof at the exchange rate prevailing on the date of issue of the licence. For remittance of foreign exchange against export obligation, the amount I foreign currency is taken into account. i) Specific licence: These licences specifically stipulate the name (s) of countries from where import can be made. j) Licences issued in Duplicate: Unless no remittance towards import is involved, Import Licences are issued in duplicate. One of the copies is marked as For Customs Purposes which the importer needs to present to Customs Authorities at the time clearance of goods and the other copy is marked as For Exchange Control Purpose, which the importer needs to present to an Authorised Dealer for the purpose of opening letter of credit or effecting remittance for the import of goods.


k) Period of validity of licence and criteria for determining validity: Period of validity means the period of shipment/ dispatch permissible for the goods concerned. The validity of import licence/certificate/permission from the date is issue of licence/certificate/permission shall be follow For Indian we can conclude that foreign exchange refers to foreign money, which includes notes, cheques, bills of exchange, bank balance and deposits in foreign currencies. Participants in foreign exchange market The main players in foreign exchange market are as follows: 1. CUSTOMERS The customers who are engaged in foreign trade participate in foreign exchange market by availing of the services of banks. Exporters require converting the dollars in to rupee and importers require converting rupee in to the dollars, as they have to pay in dollars for the goods/services they have imported. 2.COMMERCIAL BANK They are most active players in the forex market. Commercial bank dealing with international transaction offer services for conversion of one currency in to another. They have wide network of branches. Typically banks buy foreign exchange from exporters and sells foreign exchange to the importers of goods. As every time the foreign exchange bought or oversold position. The balance amount is sold or bought from the market. 3. CENTRAL BANK In all countries Central bank have been charged with the responsibility of maintaining the external value of the domestic currency. Generally this is achieved by the intervention of the bank. 4. EXCHANGE BROKERS Forex brokers play very important role in the foreign exchange market. However the extent to which services of foreign brokers are utilized depends on the tradition and practice prevailing at a particular forex market center. In India as per FEDAI guideline the Ads are free to deal directly among themselves without going through brokers. The brokers are not among to allowed to deal in their own account allover the world and also in India.


5. OVERSEAS FOREX MARKET Today the daily global turnover is estimated to be more than US $ 1.5 trillion a day. The international trade however constitutes hardly 5 to 7 % of this total turnover. The rest of trading in world forex market is constituted of financial transaction and speculation. As we know that the forex market is 24-hour market, the day begins with Tokyo and thereafter Singapore opens, thereafter India, followed by Bahrain, Frankfurt, paris, London, new york, Sydney, and back to Tokyo.

6. SPECULATORS The speculators are the major players in the forex market. Bank dealing are the major speculators in the forex market with a view to make profit on account of favorable movement in exchange rate, take position i.e. if they feel that rate of particular currency is likely to go up in short term. They buy that currency and sell it as soon as they are able to make quick profit. Corporations particularly multinational corporation and transnational corporation having business operation beyond their national frontiers and on account of their cash flows being large and in multi currencies get in to foreign exchange exposures. With a view to make advantage of exchange rate movement in their favor they either delay covering exposures or do not cover until cash flow materialize. Individual like share dealing also undertake the activity of buying and selling of foreign exchange for booking short term profits. They also buy foreign currency stocks, bonds and other assets without covering the foreign exchange exposure risk. This also result in speculations.

Exchange rate System

Countries of the world have been exchanging goods and services amongst themselves. This has been going on from time immemorial. The world has come a long way from the days of barter trade. With the invention of money the figures and problems of barter trade have disappeared. The barter trade has given way ton exchanged of goods and services for currencies instead of goods and services. The rupee was historically linked with pound sterling. India was a founder member of the IMF. During the existence of the fixed exchange rate system, the intervention currency of the Reserve Bank of India (RBI) was the British pound, the RBI ensured maintenance of the exchange rate by selling and buying pound against rupees at fixed rates. The inter bank rate therefore ruled the RBI band. During the fixed exchange rate era, there was only one major change in the parity of the rupee- devaluation in June 1966. Different countries have adopted different exchange rate system at different time. The following are some of the exchange rate system followed by various countries.

THE GOLD STANDARD Many countries have adopted gold standard as their monetary system during the last two decades of the 19th century. This system was in vogue till the outbreak of world war I. Under this system the parties of currencies were fixed in term of gold. There were two main types of gold standard: 1) Gold Specie Standard Gold was recognized as means of international settlement for receipts and payments amongst countries. Gold coins were an accepted mode of payment and medium of exchange in domestic market also. A country was stated to be on gold standard if the following condition were satisfied: Monetary authority, generally the central bank of the country, guaranteed to buy and sell gold in unrestricted amounts at the fixed price. Melting gold including gold coins, and putting it to different uses was freely allowed Import and export of gold was freely allowed. The total money supply in the country was determined by the quantum of gold available for monetary purpose. 2) Gold Bullion Standard Under this system, the money in circulation was either partly of entirely paper and gold served as reserve asset for the money supply.. However, paper money could be exchanged for gold at any time. The exchange rate varied depending upon the gold content of currencies. This was also known as Mint Parity Theory of exchange rates. The gold bullion standard prevailed from about 1870 until1914, and intermittently thereafter until 1944. World War I brought an end to the gold standard. BRETTON WOODS SYSTEM During the world wars, economies of almost all the countries suffered. In order to correct the balance of payments disequilibrium, many countries devalued their currencies. Consequently, the international trade suffered a deathblow. In1944, following World War II, the United States and most of its allies ratified the Bretton Woods Agreement, which set up an adjustable parity exchange-rate system under which exchange rates were fixed (Pegged) within narrow intervention limits (pegs) by the United States and foreign central banks buying and selling foreign currencies. This agreement, fostered by a new spirit of international cooperation, was in response to financial chaos that had reigned before and during the war. In addition to setting up fixed exchange parities ( par values ) of currencies in relationship to gold, the agreement extablished the International Monetary Fund (IMF) to act as the custodian of the system. Under this system there were uncontrollable capital flows, which lead to major countries suspending their obligation to intervene in the market and the Bretton Wood System, with

its fixed parities, was effectively buried. Thus, the world economy has been living through an era of floating exchange rates since the early 1970. FLOATING RATE SYSTEM In a truly floating exchange rate regime, the relative prices of currencies are decided entirely by the market forces of demand and supply. There is no attempt by the authorities to influence exchange rate. Where government interferes directly or through various monetary and fiscal measures in determining the exchange rate, it is known as managed of dirty float.

PURCHASING POWER PARITY (PPP) Professor Gustav Cassel, a Swedish economist, introduced this system. The theory, to put in simple terms states that currencies are valued for what they can buy and the currencies have no intrinsic value attached to it. Therefore, under this theory the exchange rate was to be determined and the sole criterion being the purchasing power of the countries. As per this theory if there were no trade controls, then the balance of payments equilibrium would always be maintained. Thus if 150 INR buy a fountain pen and the same fountain pen can be bought for USD 2, it can be inferred that since 2 USD or 150 INR can buy the same fountain pen, therefore USD 2 = INR 150. For example India has a higher rate of inflation as compared to country US then goods produced in India would become costlier as compared to goods produced in US. This would induce imports in India and also the goods produced in India being costlier would lose in international competition to goods produced in US. This decrease in exports of India as compared to exports from US would lead to demand for the currency of US and excess supply of currency of India. This in turn, cause currency of India to depreciate in comparison of currency of US that is having relatively more exports. FUNDAMENTALS IN METHODS FOR QOUTING EXCHANGE RATES EXCHANGE QUOTATION DIRECT INDIRECT VARIABLE UNIT VARIABLE UNIT HOME CURRENCY FOREIGN CURRENCY METODS OF QOUTING RATE


Functions of the Foreign Exchange Market

There are three main functions of the foreign exchange market

The basic and primary function of foreign exchange market is to transfer purchasing power between countries. The transfer function is performed through T.T, M.T, Draft, Bill of Exchange, Letters of Credit, etc. The bill of exchange is the most important and effective method of transferring purchasing power between two parties located in different countries.

Another important function of foreign exchange market is to provide credit to the importer debtor. The exports draw the bill of exchange on Importers or on their bankers. On acceptance of the bills by importer or their banker, the exporter will get the money realized on the maturity of the bills. In case the exporters are anxious to receive the payment earlier, the bills can be discounted from their bankers, or foreign exchange banks or discount houses.

The foreign exchange market performs the hedging function covering the risks on foreign exchange transactions. There are frequent fluctuations in exchange rates. If the rate is favourable, the exporter will gain and vice versa. In order to avoid the risk involved, the foreign exchange market provides hedges or actual claims through forward contracts in exchange against such fluctuations. The agencies of foreign currencies guarantee payment of foreign exchange at a fixed rate. The exchange agencies bear the risks of fluctuation of exchange rates.


Factors Influencing The Flow Of Foreign Exchange

The main factors which influence the movement of foreign exchange from one country to another are as follows:

1. Leads and Lags:

If a country expects that a change in the rate of exchange is likely to be in its favour, there will be a movement of funds to that country. Efforts will also be made to create delay in the settlement of debts. Payments for the imports will be made before they fall due. On the other hand, if a country fears that a change in the rate of exchange is likely to be unfavorable to it, then attempts will be made to secure early payments of debt. Efforts will also be made to make payments to the creditor country before they fall due. These factors which influence the movement of foreign exchange are know as 'leads and lags'.

2. Arbitrate:
Arbitrate is a process of buying a thing in one market and selling it at the same time in another market in order to take advantage of price difference. For instance, if there arises a difference in the stock exchange rates between Pakistan and England, the businessmen can take advantage of the price difference by buying the foreign exchangeor shares in the cheaper market and sell them in the dear market. They can thus make profit out of the difference in the prices of shares or foreign exchange rates.

3. Political and Economic Conditions:

If there is political instability and labour unrest in the country, the industrial growth will be adversely affected. There will be movement of foreign capital outside the country. In case the government of a country encourages private enterprise and gives liberal concessions, the growth of exports will be stimulated and the supply of foreign exchange increases.

4. Seasonal Factors:
The rate of foreign exchange is also affected by the seasonal fluctuations in the export and import of commodities. The central bank and other foreign exchange dealers try to smooth down the fluctuations in the rate of foreign exchange by purchasing foreign exchange when the exports are at its height and sell the held upforeign exchange when the imports are liberalized.


Need for Foreign Exchange

Let us consider a case where Indian company exports cotton fabrics to USA and invoices the goods in US dollar. The American importer willpay the amount in US dollar, as the same is his home currency. However the Indian exporter requires rupees means his home currency for procuring raw materials and for payment to the labor charges etc. Thus he would need exchanging US dollar for rupee. If theIndian exporters invoice their goods in rupees, then importer in USA will get his dollar converted in rupee and pay the exporter. From the above example we can infer that in case goods are bought or sold outside the country, exchange of currency is necessary. Sometimes it also happens that the transactions between two countries will be settled in the currency of third country. In that case both the countries that are transacting will require converting their respective currencies in the currency of third country. For that also the foreign exchange is required.


In todays world no economy is self sufficient, so there is need for exchange of goods and services amongst the different countries. So in this global village, unlike in the primitive age the exchange of goods and services is no longer carried out on barter basis. Every sovereign country in the world has a currency that is legal tender in its territory and this currency does not act as money outside its boundaries. So whenever a country buys or sells goods and services from or to another country, the residents of two countries have to exchange currencies. So we can imagine that if all countries have the same currency then there is no need for foreign exchange.

Foreign Exchange Risk

The risk that the exchange rate on a foreign currency will move against the position held by an investor such that the value of the investment is reduced. For example, if an investor residing in the United States purchases a bond denominated in Japanese yen, a deterioration in there at which the yen exchanges for dollars will reduce the investor's rate of return, since he or she must eventually exchange the yen for dollars. Also called exchange rate risk.


Exchange Control Administration:

The exchange control administration gets its statutory footing by virtue of the Foreign Exchange Management Act (FEMA) 1999. Based on the Act, Government of India (GOI) and Reserve Bank Of India(RBI) (acting as custodians of foreign exchange on behalf of (GOI) are empowered to issue notification regulating foreign exchange dealings to ensure its proper utilization. The instructions/guidelines of RBI, are administered through the Authorised person in foreign exchange.

About Foreign Exchange Market.

Particularly for foreign exchange market there is no market place called the foreign exchange market. It is mechanism through which one countrys currency can be exchange i.e. bought or sold for the currency of another country. The foreign exchange market does not have any geographic location. Foreign exchange market is describe as an OTC (over the counter) market as there is no physical place where the participant meet to execute the deals, as we see in the case of stock exchange. The largest foreign exchange market is in London, followed by the New York, Tokyo, Zurich and Frankfurt. The market are situated throughout the different time zone of the globe in such a way that one market is closing the other is beginning its operation. Therefore it is stated that foreign exchange market is functioning throughout 24 hours a day. In most market US dollar is the vehicle currency, viz., the currency issued to dominate international transaction. In India, foreign exchange has been given a statutory definition. Section 2 (b) of foreign exchange regulation ACT,1973 states: Foreign exchange means foreign currency and includes : All deposits, credits and balance payable in any foreign currency and any draft, travelers cheques, letter of credit and bills of exchange. Expressed or drawn in India currency but payable in any foreign currency. Any instrument payable, at the option of drawee or holder thereof or any other party thereto, either in Indian currency or in foreign currency or partly in one and partly in the other. In order to provide facilities to members of the public and foreigners visiting India, for exchange of foreign currency into Indian currency and vice-versa. RBI has granted to various firms and individuals, license to undertake money-changing business at seas/airport and tourism place of tourist interest in India. Besides certain authorized dealers in foreign exchange (banks) have also been permitted to open exchange bureaus.


Following are the Major Bifurcations: Full fledge moneychangers they are the firms and individuals who have been authorized to take both, purchase and sale transaction with the public. Restricted moneychanger they are shops, emporia and hotels etc. that have been authorized only to purchase foreign currency towards cost of goods supplied or services rendered by them or for conversion into rupees. Authorized dealers they are one who can undertake all types of foreign exchange transaction. Bank are only the authorized dealers. The only exceptions are Thomas cook, western union, UAE exchange which though, and not a bank is an AD.

Authorised Person:
Authorised person are bank and institutions authorised by Reserve Bank of India to deal with foreign exchange.RBI has granted permission to banks to undertake various activities in foreign exchange. Certain financial institutions like EXIM Bank (Export Import Bank), SIDBI etc., have been given restricted authorization to deal in specific foreign exchange transactions incidental to here their business. Authorised dealers are to ensure that exchange control regulations as prescribed in: Foreign Exchange Management Act (FEMA) and other notification are observed by themselves and their constituents both in letter and spirit. Authorised dealers are to bring to the notice of their customers the exchange control regulations and changes made therein from time to time. Authorised dealers should report to RBI, cases which many come the their notice , of evasions of attempt either direct or indirect to evade provisions of FEMA or any rule, notification, order, direction or regulation issued there under. The branches of the bank for the purpose of foreign exchange business are classified as below: Category A: Branches maintaining independent foreign currency accounts in their own names. They are the branches that have nostro and vostro account.

Category B: Branches not maintaining independent foreign currency accounting but having powers of operation on the accounts maintained by A category branch. The branch that can deal in all other transaction but do not maintain nostro and vostro a/cs fall under this category.

Category C: All other branches handling foreign exchange business through A or B category branches.

Letter of Credit "Any arrangement, however named or described, whereby a bank, acting at the request and on the instructions of a customer". According to Pritchard, "The letter of credit is a commitment on the part of buyer's bank to pay or accept drafts drawn open it, provided such drafts do not exceed a specified amount". Bill of Exchange The bill of exchange is a most effective instrument in making international payments. A bill of exchange is an order in writing from the drawer (creditor) to the drawee (debtor) to pay the specified sum of money on demand or on some specified future date (usually three months). The creditor can discount the bill of exchange from his hanker for an amount less than its face value. The margin between the face value and the amount paid, by the bank is termed as 'bank discount'. The mechanism of foreign bill of exchange assumes that each international payment in one direction is matched by the equalpayment in the opposite direction.

Foreign Exchange Dealers Association of India (FEDAI):

FEDAI is an association of authorized dealers in foreign exchange operating in India. FEDAI aims at promoting sound forex policy and is closely associated with the developmental steps in respect of foreign exchange market.

Export Finance:
The promotion of exports is a priority area for a developing economy. The earlier emphasis of restricting import to essential shifted to import substitution and export promotion. The present globalization process aim at free inflow of both capital and technology, which should ultimately lead to international competitiveness of Indian goods. This makes the promotion of exports utmost important. Bank provides finance to

exporters in order that this vital sector is able to make its contribution to the national economy.

The following are the special guidelines from RBI etc. on export finance extended by banks

1. Floor Level for Export Credit:

RBI has specified a benchmark level of export credit at 12.00% of the Net Bank Credit. Failure to achieve the floor level could attract bank specific action from RBI.

2. Lower Rate Of Interest:

The exporters are provided with export credit at comparatively lower rates of interest in order to reduce cost for exporters as the prices of their products have to be internationally competitive.

3. Refinance On Export Credit:

RBI provides refinance on export credit given by Banks as an incentive for the lending made at sub-prime lending rates.

4. Institutional Guarantee:
The Govt. Of India has set up the Export Credit Guarantee Corporation of India ltd. (ECGC) to provide export credit insurance support for both exporters and banks .The pre and post shipment export finance granted by the band have been covered under the Guarantee Schemes of ECGC. Standard Polices are also issued by ECGC to exporters covering political and commercial risks.


5. Prompt Disposal Of Export Credit Proposals:

Timely and adequate credit can be made available to exporters only if proposals for export credit are expeditiously decided upon. The following time frame (as per present internal guidelines) is to be adhered to by braches/sanctioning authorities while handling application for export credit:

Sanction of credit limits (new customers)

45 days from date of receipt at branch

Sanction of enhanced /renewal of credit limits (existing customers)

30 days from date of receipt at branch

Sanction of adhoc limits (existing customer)

15 days from date of receipt of branch


Over View:
Overall business development of the bank encompasses growth in international banking business. It forms an integral part of Banks business in providing fund based and nonfund based facilities to the export-import constituents. While the fund based facility results in interest earning, the non-fund based facilities enhance the fee based income of the bank. Handling of multi currency transactions also gives an opportunity to increase our exchange earnings. The increase in exports and other Forex business provides opportunities for Forex treasury operations of the and by widening the merchant base. The turnover of Forex Treasury operations has direct relationship with the merchant base. It is the merchant base which determines the ability of the bank to make an impact in the interbank/international Forex markets. The ensuing chapters of the book of instructions cover in detail the procedure to be followed in handling export business. This book along with the two other books of instructions on related subjects (Import, NRI, Miscellaneous) will form a compendium of instructions on Foreign Exchange business.


Exchange Rate Mechanism

The rate at which one currency is converted into another is called the exchange rate. There are two methods of quoting the exchange rate.

1) Direct Method 2) Indirect Method In Direct method foreign currency is kept constant and home currency is kept variable. In direct quotation, the principle adopted by bank is to buy at a lower price and sell at higher price. A given number of units of local currency for a unit of foreign currency is the Direct Method for quoting exchange rate e.g. USD 1 = Rs.48.30. In the Direct Method, home currency is variable. In India the direct method of quotation is used since August 1993. However, certain foreign currencies are quoted for 100 units, since their one unit value is less than one Rupee e.g. Japanese Yen, Indonesian Rupiah, Kenyan Shilling etc. In the Indirect Method of quotation, the variable is the foreign currency expressed in a fixed unit of home currency. For e.g. Rs.100 =2.0704. Home currency is kept constant and foreign currency is kept variable. Here the strategy used by bank is to buy high and sell low. In India with effect from august 2, 1993,all the exchange rates are quoted in direct method. It is customary in foreign exchange market to always quote two rates means one for buying and another rate for selling. This helps in eliminating the risk of being given bad rates i.e. if a party comes to know what the other party intends to do i.e. buy or sell, the former can take the letter for a ride. There are two parties in an exchange deal of currencies. To initiate the deal one party asks for quote from another party and other party quotes a rate. The party asking for a quote is known as asking party and the party giving a quotes is known as quoting party. The advantage of twoway quote is as under i. The market continuously makes available price for buyers or sellers. ii. Two way price limits the profit margin of the quoting bank and comparison of one . . quote with another quote can be done instantaneously. iii. As it is not necessary any player in the market to indicate whether he intends to buy or . sale foreign currency, this ensures that the quoting bank cannot take advantage by manipulating the prices. iv. It automatically insures that alignment of rates with market rates.

v.Two way quotes lend depth and liquidity to the market, which is so very essential for . . efficient market. `In two way quotes the first rate is the rate for buying and another for selling. We should understand here that, in India the banks, which are authorized dealer, always quote rates. So the rates quoted- buying and selling is for banks point of view only. It means that if exporters want to sell the dollars then the bank will buy the dollars from him so while calculation the first rate will be used which is buying rate, as the bank is buying the dollars from exporter. The same case will happen inversely with importer as he will buy dollars from the bank and bank will sell dollars to importer.

Purchase and Sale Transaction

All foreign exchange transactions undertaken have to be either purchase or a sale transaction for the bank. The type of transaction (i.e. whether it is purchase or sale) is to be determined based on whether the bank dealing with the foreign exchange is buying or selling the same.

In a purchase transaction the bank receives foreign exchange.

Example: 1) Export-Bank gets or buys the foreign exchange from the exporter and pays equivalent Indian Rupees. 2) Tender of foreign currency notes/traveler cheques /DD/ cheques by a customer. 3) Inward remittance by way of a telegraphic transfer from abroad.


In a sale transaction, the bank parts with foreign exchange. Example 1) Import: Bank delivers foreign exchange against Indian Rupees paid by the importer. 2) Issuance of TT/DD payable abroad.

Types of Rates
All purchases/sales transaction is not alike and hence attracts different rates. Although both, payment of an import bill and issuance of a TT in foreign currency are sale transaction, the rate for the former would be costlier (or worse) as compared to the latter. The issuance of a DD is comparatively simple and while the Rupee equivalent is recovered immediately, the payment made overseas is at a later date, giving the bank some float funds. In the case of an import bill, there is considerably higher work like scrutiny of documents, follow up, folder maintenance etc. The additional work involved is sought to be compensated by levying al bill collection commission and selling the foreign currency at a worse rate as compared to the issuance of TT. Thus, other things being equal, there would be two rates, one for the import bill Bill Selling Rate. (BC Selling) and the other for the outward remittances the TT Selling Rate. Similarly, in case of purchase transaction, the exchange rate quoted for an export bill would be worse than the quote for an inward remittance. Additionally, the quotes would vary because of differences in period of payment for bills of exchange drawn for exports. The different types of rates can be summarized as below: Purchase TT Buying OD Buying TC Buying Currency Note Buying Sale TT Selling BC Selling TC Selling Currency Note Selling


The foreign exchange quotation will also be determined by the date of delivery i.e. the date on which the transaction is complete. The delivery under a foreign exchange contract can be made in one of the following ways:

Ready or cash TOM SPOT FORWARD


Delivery on the same day i.e. on the deal date Delivery made on the next working day after deal date Delivery on the second working day after deal date Delivery subsequent to SPOT date.

Forward Rates are quoted either at a higher (premium) or lower (discount) rate than the spot rate. This is because in free exchange market, the rates would be based on demand and supply, with the currency in excess supply tending to be cheaper and a scarce one costlier. Further, the exchange rate is also connected to the cost of funds (interest) in respective countries. In a totally free market, the premium/discount on forwards would be difference in the interest rate in the two countries. Currencies with lower interest rates at a premium. Always premium will be added to and discount deducted from the spot rate to arrive at the forward rate in the case of direct quotation.

Computation of Rates
The Bank is a trader in foreign exchange and hence the purchase/sale are not effected at the same rate. The purchases are made at a lower price and the sale at a higher price, with the differential being the exchange profit. The maxim practiced by the banks is Buy Low Sell High for direct quotations. In the foreign exchange market, quotations are always two-way i.e. for both buying and selling. The two-way quote for U.S. Dollar would appear as USD 1 =Rs.48.30/31 where the buying rate is Rs.48.30 and the selling rate is Rs.48.31. The buying rate is known as the Bid rate and the selling rate as the Offer rate. FEDAI has given freedom to Authorised Dealers for determining their own policy regarding the basis for quotation of rates for merchant transactions.


Base rate is the rate derived from ongoing market rate. Based on which buying/selling rates are quoted for merchant transactions. The interbank rates are normally for spot deliveries. Hence, for quoting rates for merchant transaction on cash basis (i.e. value Today), the base rate will be adjusted to the extent of cash/spot differences.

Exchange Margin
The Base Rates, which are derived from the ongoing interbank spot rates, are applied for arriving at rates for merchant purchase and sale transactions. Banks have been given freedom to fix the quantum of exchange margin to be loaded to the base rate for quoting rates for different types of merchant transactions e.g. TT Buying/Selling, Bill Buying/Selling etc.

a) Base Rate: On USD being quoted at Rs.48.30/35, the market will buy USD from us at Rs.48.30 and hence the base rate will be taken at Rs.48.30. b) Exchange Margin: If the specified exchange/profit margin for TT Buying rate is 0.025% to 0.080% on Rs .48.30 is 4 paise. For buying transactions, as per the maxim (Buy low Sell High) the profit margin will be reduced from the Base rate i.e. Rs.48.30 0.04 =Rs.48.26. c) Rounding Off: The rate offered to the customer is normally rounded off to the nearest paise. However, the rupee equivalent is rounded off to the nearest whole rupee i.e. without paise.


Internal System/Uniform Rate Quotation

The Bank has a well laid down system for informing the indicative exchange rates to the branches. The Dealing Room at Treasury Branch, Mumbai prepares the rates sheet will contain the merchant (card) rates (i.e. TT Selling, BC selling, TT Buying and OD buying) for 14 currencies as well as the Traveller Cheques/Cash for major currencies. Daily card rates as well as the market view are also displayed on the intra-net. The other A category branch viz overseas Branch, Ernakulam also draws up the card rates in currencies in which positions are maintained by them and inform the rates to the B category branches routing forex business through them. The C category branches are to contact the designated A/B category branch for rate information. The card/merchant rates informed are only indicative rates are applicable for transactions below USD 5000 and equivalent. The card rates are subject to revision from time to time, depending on intra-day market movements. Branches in Mumbai have been advised to report to and obtain rates for all transactions irrespective of amount from treasury Branch, Mumbai in view of ready accessibility. The B category branches in the southern states of Karnataka, Kerala, Tamilnadu and Andhra Pradesh shall report their transactions in USD, GBP and EURO to Dealing Room at Overseas Branch, Ernakalum and all transactions in other currencies to Treasury Branch, Mumbai. All other states will report all the transactions to treasury Branch, Mumbai only. However, all the branches shall report their PCFC / FDBD / FC loan transactions only to Treasury Branch, Mumbai. For the sake of clarity, it is repeated that the Merchant Rates (Card Rates) as the name implies are the rates, which are to applied for the forex transactions and include the exchange margin. The branches are, therefore, not required to add/deduct the exchange margin. Para No, 28 .F. to 28. N. are included only for the sake of better understanding of the mechanism of computation of the exchange rate quotations.


Fine Rates/ Finer Rates/ Superfine Rates

Fine Rates: The dealing room may quote fine rates on specific request of the branch of highly rated clients and for high value transactions. The request for fine rate must be followed immediately by a written confirmation from the Branch Manager/Chief Manager of the concerned branch. Finer Rates: Heads of Treasury Branch, Mumbai and Overseas Branch, Ernakulam as well as Chief Dealer at Treasury Brach, Mumbai have been delegated certain powers for quoting improved rates by loading finer margins over and above the normal fine rates. Superfine Rates: B/C category braches many approach international banking Division Central Office for quoting improved margin over and above the finer rates to their good customers with high value transactions and better turnover as a regular facility, which will be approved for period of one year and to be as a regular facility, which will be approved for a period of one year and to be reviewed on yearly basis. For availing this facility, specialized branches like overseas Branches and Industrial Finance Branches, may directly approach IBD while other braches may approach IBD through their respective controlling offices.

Sharing of Exchange Commission

In order to compensate branches with their share of exchange profit. The B category branch is required to keep a record of various transactions reported to the Dealing Room viz. Date, Bill Ref. No., Foreign Currency Amount, Rate, Rupee equivalent (transaction type wise). The B category branches reporting transactions to overseas Branch, Erankulam will claim their share of exchange profit from them in respect of their own transactions as well as that of the C category braches routed through them. The claim is to be made at the following rates on the Rupee Turnover on half early basis i.e. In September for transactions reported during March to August and in March for transactions reported during September to February. The share of exchange commission on transaction reported to Treasury Branch, Mumbai will be calculated and remitted to the B category branch every half year in September and March.


Nature of Business Inward Remittance/Export Collection Outward Purchase Imports

Exchange Commission Rate 0.0120% 0.0625% 0.0625%

It may be noted that no exchange commission shall be passed on to the branches on the transactions where any type of finer rates of matching rates have been quoted.

Hours of Business
The hours during which forex business will be transacted are the normal banking hours of AD branches. However, on Saturdays, no forex transactions will be conducted except: 1) Purchase/Sale of Foreign Currency Travelers Cheques / Foreign Currency notes. 2) Any remittance payable to bonafide travelers to tourists.



INTRODUCTION Export from India should strictly conform to EXIM Policy and exchange control regulations. It is, therefore, imperative that the branch officials possess uptodate knowledge of the same, brief outline of EXIM policy/ exchange control regulations are given hereunder:


a) Every exporter has to apply for and obtain an importer Exporter Code Number (IEC NO/Impex Code) Annexure 2 (1)

Exceptions are:
i. ii. . Ministries and Departments of Central and State Governments. Persons importing or exporting goods for their personal use not connected with trade or manufacturing or agriculture.

iii. Persons importing/exporting goods from /to Nepal provided CIF value of a single . Consignment does not exceed Rs. 25000/iv. Persons importing/exporting goods from/ to Myanmar through Indo Myanmar border area provided CIF value of single consignment does not exceed Rs.25000/-. Application for IEC Number shall be made to the Regional Licencing Authority of the Director General of Foreign Trade (DGFT) I the form given in Ann. No. 1. The applications shall be signed by the applicant supported by following documents: 1. DD for Rs.1000/ towards fee. 2. I.T. permanent A/c No. (PAN); 3. If IT pan no. is not allotted, then anyone of the following documents:


i. Certificate from banker as per specimen in (As per Annexure 2 (2) ii. Sales tax registration certificate; iii. A copy of passport in the case of individual applicant. b. Goods exported must be those which can be exported freely or those under allocable quotas or those covered by specific export licences, in keeping with the ExportImport Policy in force. The lists of items which can be exported or otherwise, are published in the Export Import Policy which is usually in force for a period of 5 years and published annually. c. Exports may be made under Export Promotion Capital Goods Scheme (EPCG). EPCG Scheme facilitates prior import of capital goods, subject to export obligation to be fulfilled over a period of time. d. Exporter / s of Gem and Jewellery enjoy to facility of Replenishment (REP) licences and Diamond/ DTC Imprest licences. e. Export invoices have to be denominated in any convertible currency or in Indian Rupees but realized in freely convertible currencies. The only exception is exports to Russia, where reimbursement is received under Debt Repayment (in Rupees).

Export of Personal Jewellery

Taking out of india personal jewellery is regulated by Baggage Rules of the Ministry of Commerce under the Export Import Policy.

Export of Indian Currency

Taking out of Indian Currency is subject to the general permission granted by RBI and in force from time to time. Presently following is the general permission in force. 1) A person may take or send out of India to Nepal or Bhutan currency notes of Government of India or RBI notes (other than notes of denomination of above Rs.100/-in either case)


2) To all other countries Indian Rupee Notes an coins not exceeding Rs. 5000/- per person by any resident Indian processing abroad on a temporary visit. Taking or sending out of Indian currency in the form of commemorative coins upto 2 coins each is permitted by RBI.

Export of Foreign Currency

RBI has given general permission to person in or resident in India to take out of India, foreign currencies equivalent to US$ 2000/- held by them for personal purposes. Taking out of foreign exchange by residents in any form other than that obtained from an authorised dealer of full fledged money changer is prohibited. Foreign exchange including the currency notes upto the value limit in force obtained by residents from an authorised dealer/full fledged money changer can be taken out of India. Person I India but not resident therein may be allowed by the customs to carry the unspent currency brought by them into India provided it has been declared in the Form CDF (Ann.No.10) at the time of their arrival in India.

Export of Securities
Export of securities outside India requires the general or special permission of RBI.



In free market, it is the demand and supply of the currency which should determine the exchange rates but demand and supply is the dependent on many factors, which are ultimately the cause of the exchange rate fluctuation, some times wild. The volatility of exchange rates cannot be traced to the single reason and consequently, it becomes difficult to precisely define the factors that affect exchange rates. However, the more important among them are as follows:

Economic factors affecting exchange rates include hedging activities, interest rates, inflationary pressures, trade imbalance, and euro market activities. Irving fisher, an American economist, developed a theory relating exchange rates to interest rates. This proposition, known as the fisher effect, states that interest rate differentials tend to reflect exchange rate expectation. On the other hand, the purchasing- power parity theory relates exchange rates to inflationary pressures. In its absolute version, this theory states that the equilibrium exchange rate equals the ratio of domestic to foreign prices. The relative version of the theory relates changes in the exchange rate to changes in price ratios.

The political factor influencing exchange rates include the established monetary policy along with government action on items such as the money supply, inflation, taxes, and deficit financing. Active government intervention or manipulation, such as central bank activity in the foreign currency market, also have an impact. Other political factors influencing exchange rates include the political stability of a country and its relative economic exposure (the perceived need for certain levels and types of imports). Finally, there is also the influence of the international monetary fund.



Psychological factors also influence exchange rates. These factors include market anticipation, speculative pressures, and future expectations. A few financial experts are of the opinion that in todays environment, the only trustworthy method of predicting exchange rates by gut feel. Bob Eveling, vice president of financial markets at SG, is corporate finances top foreign exchange forecaster for 1999. evelings gut feeling has, defined convention, and his method proved uncannily accurate in foreign exchange forecasting in 1998.SG ended the corporate finance forecasting year with a 2.66% error overall, the most accurate among 19 banks. The secret to evelings intuition on any currency is keeping abreast of world events. Any event,from a declaration of war to a fainting political leader, can take its toll on a currencys value. Today, instead of formal modals, most forecasters rely on an amalgam that is part economic fundamentals, part model and part judgment. Fiscal policy Interest rates Monetary policy Balance of payment Exchange control Central bank intervention Speculation Technical factors


Hedging Tools
Introduction Consider a hypothetical situation in which ABC trading has to import a raw material for manufacturing goods. But this raw material is required only after 3 months. However in 3 month the prices of raw material may go up or down due to foreign exchange fluctuation and at this point of time it cannot be predicated whether the prices would go up or down. Thus he is exposed to risks with fluctuation in forex rates. If he buys the goods in advance then he will incur heavy interest and storage charges. However, the availability of derivatives solves the problem of importer. He can buy currency derivatives. Now any loss due to rise in raw material prices would be offset by profit on the futures contract and vice versa. Hence the derivative are the hedging tools that are available to the companies to cover the foreign exchange exposures faced by them. Derivatives defined Derivatives are financial contracts of pre-determined fixed duration, whose values are derived from the value of an underlying primary financial instrument, commodity or index, such as: interest rates, exchange rates, commodities, and equities. Derivatives are risk-shifting instrument. Initially, they were used to reduce exposure to change in foreign exchange rates, interest rates or stock indexes or commonly known as risk hedging. Hedging is the most important aspect of derivatives and also its basic economic purpose. There has to be counter party to hedger and they are speculators. Derivatives have come into existence because of the prevalence of risks in every business. These risks could be physical, operating, investment and credit risks. Derivatives provide a means of managing such risks. The need to manage external risk is thus one pillar of the derivative market. Parties wishing to manage their risks are called hedgers. The common derivative products are forwards, options, swaps and futures. 1. FORWARD CONTRACTS Forward exchange contract is a firm and binding contract, entered into by the bank and its customers, for purchase of specified amount of foreign currency at an agreed upon at the time of entering into forward deal. The bank on its part will cover itself either in the inter- bank market or by matching a contract to sell with buy. The contract between customers and bank is essentially written agreement and bank generally stands to make a loss if the customer default in fulfilling his commitment to sell foreign currency. A foreign exchange forward contract is a contract under which the bank agrees to sell or buy a fixed amount of currency to or from the company on an agreed future date in exchange for a fixed amount currency. No money is exchanged until that future date.


A company will usually enter into forward contract when it knows there will be a need to buy or sell foreign currency on a certain date in the future. It may believe that todays forward rate will prove to be more favorable than the spot rate prevailing on that future date. Alternatively, the company may just want to eliminate the uncertainty associated with foreign exchange rate movements. The forward contract commits both parties to carrying out the exchange of currencies at the agreed rate, irrespective of whatever happens to the exchange rate. The rate quoted for a forward contract is not an estimate of what the exchange rate will be on the agreed future date. It reflects the interest rate differential between the two currencies involved. The forward rate may be higher or lower than the market exchange rate on the day contract is entered into. Forward rate has two components 1) Spot rate 2) Forward points Forward points, also called as forward differential, reflect the interest differential between the pair of currencies provided capital flows are freely allowed. This is not true in case of US $/Rupee rate as there is exchange control regulating prohibiting free movement of capital from/into India. In case of US $/Rupee it is pure demand and supply which determines forward differentials. Forward rate are quoted by indicating spot rate and premium/discount. In direct rate, Forward rate = spot rate +premium/-discount

Example: The interbank rate for 31st march is 48.70 Premium for forward are as follows Month Paise April 40/42 May 65/67 June 87/88


If a 1-month forward is taken then the forward rate would be 48.70+0.42 = 49.12 If a 2-month forward is taken then the forward rate would be 48.70 + .67 = 49.37. If a 3-month forward is taken then the forward rate would be 48.70 + .88 = 49.58 Example: Lets take the same example for a broken date forward contract spot rate = 48.70 for 31st March. Premium for forwards are as follows 30th April 48.70 + .42 31st May 48.70 + .67 30th June 48.70 + .88 For 17th May the premium would be (.67 - .42) * 17/31 = .137 Therefore the premium up to 17th May would be .67 + .137 =.807 Therefore the forward rate for 17th May would be 48.70 + .807 = 49.507. Premium when a currency is costlier in future (forward) as compared to spot, the currency is said to be at premium vis--vis another currency. Discount when a currency is cheaper in future (forward) as compared to spot, the currency is said to be at discount vis--vis another currency. Example: A company needs DEM 235000 in six months time.

Market Parameters: Spot rate IEP/DEM = 2.3500 Six months forward rate IEP/DEM = 2.3300.


Solution available: The company can do nothing and hope that the rate in six months time will be more favorable than the current six months forward rate. This would be successful strategy if in a six months time the rate is higher than 2.33. However, if in a six months time the rate is lower than 2.33, the company will have to lose money. It can avoid the risk of a rates being a lower in the future by entering into a forward contract now to buy DEM 235000, for delivery in six months time at an IEP/DEM at rate of 2.33. It can decide on some combinations of the above. Various options available in forward contracts : A forward contract once booked can be cancelled, rolled over, extended and even early delivery can be made. Roll over forward contracts Rollover forward contracts are one where forward exchange contract is initially booked for the total amount of loan etc. to be re-paid. As and when installment falls due, the same is paid by the customer at the exchange rate fixed in forward exchange contract. The balance amount of the contract rolled over till the date for the next installment. The process of extension continues till the loan amount has been re-paid. But the extension is available subject to the cost being paid by the customer. Thus, under the mechanism of roll over contracts, the exchange rate protection is provided for the entire period of the contract and the customer has to bear the roll over charges. The cost of extension (rollover) is dependent upon the forward differentials prevailing on the date of extension. Thus, the customer effectively protects himself against the adverse spot exchange rates but he takes a risk on the forward differentials. (i.e. premium/discount). Although spot exchange rates and forward differentials are prone to fluctuations, yet the spot exchange rates being more volatile the customer gets the protection against the adverse movements of the exchange rates. A corporate can book with the Authorised Dealer a forward cover on roll-over basis as necessitated by the maturity dates of the underlying transactions, market conditions and the need to reduce the cost to the customer. Example : An importer has entered into a 3 months forward contract in the month of February. Spot Rate = 48.65 Forward premium for 3 months (May) = 0.75 Therefore rate for the contract = 48.65 + 0.75 = 49.45 Suppose, in the month of May the importer realizes that he will not be able to make the payment in May, and he can make payment only in July. Now as per the guidelines of RBI and FEDAI he can cancel the

contract, but he cannot re-book the contract. So for this the importer will go for a rollover forward for May over July. The premium for May is 0.75 (sell) and the premium for July is 119.75 (buy). Therefore the additional cost i.e. (119.75 0.75) = 0.4475 will have to be paid to the bank. The bank then fixes a notional rate. Lets say it is 48.66. Therefore in May he will sell 48.66 + 0.75 = 49.41 And in July he will buy 48.66 + 119.75 = 49.85 Therefore the additional cost (49.85 49.41) = 0.4475 will have to be paid to the Bank by the importer. Cancellation of Forward Contract: A corporate can freely cancel a forward contract booked if desired by it. It can again cover the exposure with the same or other Authorised Dealer. However contracts relating to non-trade transaction\imports with one leg in Indian rupees once cancelled could not be rebooked till now. This regulation was imposed to stem volatility in the foreign exchange market, which was driving down the rupee. Thus the whole objective behind this was to stall speculation in the currency. But now the RBI has lifted the 4-year-old ban on companies rebooking the forward transactions for imports and non-traded transactions. It has been decided to extend the freedom of re-booking the import forward contract up to 100% of un-hedged exposures falling due within one year, subject to a cap of $ 100 Mio in a financial year per corporate. The removal of this ban would give freedom to corporate Treasurers who should be in opposition to reduce their foreign exchange risks by canceling their existing forward transactions and re-booking them at better rates. Thus this in not liberalization, but it is restoration of the status quo ante. Also the Details of cancelled forward contracts are no more required to be reported to the RBI. The following are the guidelines that have to be followee in case of cancellation of a forward contract. 1.)In case of cancellation of a contract by the client (the request should be made on or before the maturity date) the Authorised Dealer shall recover/pay the, as the case may be, the difference between the contracted rate and the rate at which the cancellation is effected. The recovery/payment of exchange difference on canceling the contract may be up front or back ended in the discretion of banks. 2.)Rate at which the cancellation is to be effected : Purchase contracts shall be cancelled at the contracting Authorised Dealers spot T.T. selling rate current on the date of cancellation.

Sale contract shall be cancelled at the contracting Authorised Dealers spot T.T. selling rate current on the date of cancellation. Where the contract is cancelled before maturity, the appropriate forward T.T. rate shall be applied. 3.)Exchange difference not exceeding Rs. 100 is being ignored by the contracting Bank. 4.)In the absence of any instructions from the client, the contracts, which have matured, shall be automatically cancelled on 15th day falls on a Saturday or holiday, the contract shall be cancelled on the next succeeding working day. In case of cancellation of the contract 1.)Swap, cost if any shall be paid by the client under advice to him. 2.)When the contract is cancelled after the due date, the client is not entitled to the exchange difference, if any in his favor, since the contract is cancelled on account of his default. He shall however, be liable to pay the exchange difference, against him. Early Delivery Suppose an Exporter receives an Export order worth USD 500000 on 30/06/2000 and expects shipment of goods to take place on 30/09/2000. On 30/06/200 he sells USD 500000 value 30/09/2000 to cover his FX exposure. Due to certain developments, internal or external, the exporter now is in a position to ship the goods on 30/08/2000. He agrees this change with his foreign importer and documents it. The problem arises with the Bank as the exporter has already obtained cover for 30/09/2000.He now has to amend the contract with the bank, whereby he would give early delivery of USD 500000 to the bank for value 30/08/2000.i.e. the new date of shipment. However, when he sold USD value 30/09/2000, the bank did the same in the market, to cover its own risk. But because of early delivery by the customer, the bank is left with a long mismatch of funds 30/08/2000 against 30/09/2000, i.e. + USD 500000 value 30/08/2000 (customer deal amended) against the deal the bank did in the inter bank market to cover its original risk USD value 30/09/2000 to cover this mismatch the bank would make use of an FX swap. The swap will be 1.)Sell USD 500000 value 30/08/2000. 2.)Buy USD 500000 value 30/09/2000 The opposite would be true in case of an importer receiving documents earlier than the original due date. If originally the importer had bought

USD value 30/09/2000 on opening of the L/C and now expects receipt of documents on 30/08/2000, the importer would need to take early delivery of USD from the bank. The Bank is left with a short mismatch of funds 30/08/2000 against 30/09/2000. i.e. USD 500000 value (customer deal amended) against the deal the bank did in the inter bank market to cover its original risk + USD 500000 .To cover this mismatch the bank would make use of an FX swap, which will be ; 1. Buy USD value 30/08/2000. 2. Sell USD value 30/09/2000 The swap necessitated because of early delivery may have a swap cost or a swap difference that will have to be charged / paid by the customer. The decision of early delivery should be taken as soon as it becomes known, failing which an FX risk is created. This means that the resultant swap can be spot versus forward (where early delivery cover is left till the very end) or forward versus forward. There is every likelihood that the original cover rate will be quite different from the market rates when early delivery is requested. The difference in rates will create a cash outlay for the bank. The interest cost or gain on the cost outlay will be charged / paid to the customer. Substitution of Orders .The substitution of forward contracts is allowed. In case shipment under a particular import or export order in respect of which forward cover has been booked does not take place, the corporate can be permitted to substitute another order under the same forward contract, provided that the proof of the genuineness of the transaction is given. Advantages of using Forward Contracts : They are useful for budgeting, as the rate at which the company will buy or sell is fixed in advance. There is no up-front premium to pay whn using forward contracts. The contract can be drawn up so that the exchange takes place on any agreed working day. Disadvantages of Forward Contracts : They are legally binding agreements that must be honoured regardless of the exchange rate prevailing on the actual forward contract date. They may not be suitable where there is uncertainty about future cash flows. For example, if a company tenders for a contract and the tender is unsuccessful, all obligations under the Forward Contract must still be honoured.

2. OPTIONS: An option is a Contractual agreement that gives the option buyer the right, but not the obligation, to purchase (in the case of a call option) or to sell (in the case of put option) a specified instrument at a specified price at any time of the option buyers choosing by or before a fixed date in the future. Upon exercise of the right by the option holder, and option seller is obliged to deliver the specified instrumentat a specified price. The option is sold by the seller (writer) To the buyer (holder) In return for a payment (premium) Option lasts for a certain period of time the right expires at its maturity Options are of two kinds 1.) Put Options 2.) Call Options PUT OPTIONS: The buyer (holder) has the right, but not an obligation, to sell the underlying asset to the seller (writer) of the option. CALL OPTIONS: The buyer (holder) has the right, but not the obligation to buy the underlying asset from the seller (writer) of the option. STRIKE PRICE Strike price is the price at which calls & puts are to be exercised (or walked away from) AMERICAN & EUROPEAN OPTIONS American Options: The buyer has the right (but no obligation) to exercise the option at any time between purchase of the option and its maturity


European Options The buyer has the right (but no obligations) to exercise the option at maturity only. UNDERLYING ASSETS: Physical commodities, agriculture products like wheat, plus metal, oil. Currencies. Stock (Equities) INTRINSIC VALUE: It is the value or the amount by which the contract is in the option. When the strike price is better than the spot price from the buyers perspective. Example : If the strike price is USD 5 and the spot price is USD 4 then the buyer of put option has intrinsic value. By the exercising the option, the buyer of the option, can sell the underlying asset at USD 5 whereas in the spot market the same can be sold for USD 4. The buyers intrinsic value is USD 1 for every unit for which he has a right to sell under the option contract. IN, OUT, AT THE MONEY: In-the-money : An option whose strike price is more favorable than the current market exchange rate is said to be in the money option. Immediate Example exercise of such option results in an exchange profit. :

If the US $ call price is (put) 1 = (call) US $ 1.5000 and the market price is 1 = US $ 1.4000, the exercise of the option by purchaser of US $ call will resultin profit of US $ 0.1000 per pound. Such types of option contract is offered at ahigher price or premium. Out-of-the-money : If the strike price of the option contract is less favorable than the current market exchange rate, the option contract is said to be out-of-the- money to its market price.


At-the-money: If the market exchange rate and strike prices are identical then the option is called to be at-the-money option. In the above example, if the market price is 1 = US $ 1.5000, the option contract is said to be at the money to its market place. Summary Prices Calls Puts Spot>Strike in-the-money out-of-the-money Spot=Strike at-the-money at-the-money Spot<Strike out-of-the-money in-the-money Naked Options: A naked option is where the option position stands alone, it is not used in the conjunction with cash marked position in the underlying asset, or another potion position. Pay-off for a naked long call : A long call, i.e. the purchaser of a call (option), is an option to buy the underlying asset at the strike price. This is a strategy to take advantage of any increase in the price of the underlying asset. Example : Current spot price of the underlying asset : 100 Strike price : 100 Premium paid by the buyer of the call : 5


(Scenario-1) If the spot price at maturity is below the strike price, the option will not be exercised (since buying in the spot is more advantageous). Buyer will lose the premium paid. (Scenario-2) If the spot price is equal to strike price (on maturity), there is no reason to exercise the option. Buyer loses the premium paid (Scenario-3) If the spot price is higher than the strike price at the time of maturity, the buyer stands to gain in exercising the option. The buyer can buy the underlying asset at strike price and sell the same at current market price thereby make profit. However, it may be noted that if on maturity the spot price is less than the INR 43.52 (inclusive of the premium) the buyer will stand to loose. CURRENCY OPTIONS A currency option is a contract that gives the holder the right (but not the obligation) to buy or sell a fixed amount of a currency at a given rate on or before a certain date. The agreed exchange rate is known as the strike rate or exercise rate. An option is usually purchased for an upfront payment known as a premium. The option then gives the company the flexibility to buy or sell at the rate agreed in the contract, or to buy or sell at market rates if they are more favorable, i.e. not to exercise the option. How are Currency Options are different from Forward Contracts? A Forward Contract is a legal commitment to buy or sell a fixed amount of a currency at a fixed rate on a given future date. A Currency Option, on the other hand, offers protection against unfavorable changes in exchange raters without sacrificing the chance of benefiting from more favorable rates. Types of Options : A Call Option is an option to buy a fixed amount of currency. A Put Option is an option to sell a fixed amount of currency. Both types of options are available in two styles :


1. The American style option is an option that can be exercised at any time before its expiry date. 2. The European style option is an option that can only be exercised at the specific expiry date of the option Option premiums : By buying an option, a company acquires greater flexibility and at the same time receives protection against unfavorable changes in exchange rates. The protection is paid for in the form of a premium. Example: A company has a requirement to buy USD 1000000 in one months time. Market parameters : Current Spot Rate is 1.600, one month forward rate is 1.6000 Solutions available : Do nothing and buy at the rate on offer in one months time. The company will gain if the dollar weakens (say 1.6200) but will lose if it strengthens (say 1.5800). Enter into a forward contract and buy at a rate of 1.6000 for exercise in one months time. In company will gain if the dollar strengthens, but will lose if it weakens. But a call option with a strike rate of 1.6000 for exercise in one months time. In this case the company can buy in one months time at whichever rate is more attractive. It is protected if the dollar strengthens and still has the chance to benefit if it weakens. How does the option work ? The company buys the option to buy USD 1000000 at a rate of 1.6000on a date one month in the future (European Style). In this example, lets assume that the option premium quoted is 0.98 % of the USD amount (in this case USD 1000000). This cost amounts to USD 9800or IEP 6125. Outcomes : If, in one months time, the exchange rate is 1.5000, the cost of buying USD 1000000 is IEP 666,667. However, the company can exercise its Call Option and buy USD 1000000 at 1.6000. So, the company will only have to pay IEP 625000 to buy the USD 1000000 and saves IEP 41667 over the cost of buying dollars at the prevailing rate. Taking the cost of the potion premium into account, the overall net saving for the companyis IEP 35542.


On the other hand, if the exchange rate in one months time is1.7000. The company can choose not to exercise the Call Option and can buy USD 1000000 at the prevailing rate of1.7000. The company pays IEP 588235 for USD 1000000 and saves IEP 36765 over the cost of forward cover at 1.6000. The company has a net saving of IEP 30640 after taking the cost of the option premium into account. In a world of changing and unpredictable exchange rates, the payment of a premium can be justified by the flexibility that options provided.

Bank Branch Management Foreign Exchange Operations* A complete guide to understand foreign exchange operations in banks Highlights Themes of this product are:

Understand foreign exchange operations in banks Discuss the procedure for issue and encashment of travelers' cheques Discuss the procedure for issue and encashment of foreign currency notes Understand the factoring and for faiting mechanism

Library of 3 Courses Available Products

For information about our other off-the-shelf e-learning solutions see Course Catalog




Overview This e-learning course on 'BBM - Foreign Exchange Operations' is designed to help users understand foreign exchange operations of a bank. Further, the course discusses in detail FEDAI rules relating to forex transactions, procedure in case of issue and encashment of travelers' cheques and foreign currency notes.

After completing this course you will be conversant with :

Foreign exchange functions in a bank branch The concept of correspondent banking Different instruments of international money transfers The rules for foreign contributions FEDAI rules relating to forex transactions Procedure in case of issue and encashment of travelers' cheques/foreign currency notes Factoring, forfaiting, and forward contracts

Target Audience Those who are interested in understanding the foreign exchange operations of a bank.

Course Level and Number of Courses Basic to Intermediate. Library of 3 Courses Instructional Method Dynamic, Interactive e-learning To purchase this course online, visit:

Library of 3 Courses Bank Branch Management - Foreign Exchange Operations Time taken to complete each Course: One hour



1. Foreign Exchange Remittance- I

The meaning of foreign exchange Foreign exchange functions in a bank branch The concept of correspondent relation between banks Different instruments of international money transfers The procedure to be followed in transacting inward and outward

2. Foreign Exchange Remittance - II

Non-conventional modes of foreign exchange remittance The rules for foreign contributions FEDAI rules relating to forex transactions The procedure regarding issue and encashment of traveler's cheques The procedure of encashment of foreign currency notes The rules relating to release of foreign exchange to Indian residents

3. Foreign Exchange Transactions

How to calculate buying and selling rates for telegraphic transfer (TT) and bill transactions The various factors determining forward margin The implication of premium and discount The procedure of recovery of interest Factoring, forfeiting, and forward contracts

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Directory of Banks in India List of authorised dealers in foreign exchange List of banks to whom licences have been issued to deal in foreign exchange ABN AMRO Bank N.V. Abu Dhabi Commercial Bank Ltd. Allahabad Bank American Express Bank Ltd. Andhra Bank ANZ Grindlays Bank Ltd. Arab Bangladesh Bank Ltd. Bank Internasional Indonesia Bank of America National Trust and Savings Association

Bank of Bahrain and Kuwait B.S.C. Bank of Baroda Bank of Ceylon Bank of India Bank of Madura Ltd. Bank of Maharashtra Bank of Nova Scotia Bank of Rajasthan Ltd. Bank of Tokyo-Mitsubishi Ltd. Banque Nationale De Paris Barclays Bank p.l.c. Benares State Bank Ltd. Bharat Overseas Bank Ltd. Bombay Mercantile Co-operative Bank Ltd. Union Bank of India Foreign exchange reserves

Foreign exchange Exchange rates Currency band Exchange rate Exchange rate regime Fixed exchange rate

Floating exchange rate Linked exchange rate Markets Foreign exchange market Futures exchange Retail forex Products Currency Currency future Non-deliverable forward Forex swap Currency swap Foreign exchange option Historical agreements Bretton Woods Conference Smithsonian Agreement Plaza Accord Louvre Accord See also Bureau de change / currency exchange (office) Safe-haven currency Foreign exchange reserves (also called Forex reserves or FX reserves) in a strict sense are only the foreign currency deposits and bonds held by central banks and monetary authorities. However, the term in popular usage commonly includes foreign exchange and gold, SDRs and IMF reserve positions. This broader figure is more readily available, but it is more accurately termed official international reserves or international reserves. These are assets of the central bank held in different reserve currencies, mostly the US dollar, and to a lesser extent the euro, the UK pound, and the Japanese yen, and

used to back its liabilities, e.g. the local currency issued, and the various bank reservesdeposited with the central bank, by the government or financial institutions. Contents [hide]

1 History 2 Purpose o 2.1 Changes in reserves 3 Costs, benefits, and criticisms 4 Excess reserves 5 List of countries by foreign exchange reserves 6 See also 7 References 8 External links o 8.1 Source o 8.2 Articles o 8.3 Speeches [edit]History Official international reserves, the means of official international payments, formerly consisted only of gold, and occasionally silver. But under the Bretton Woods system, the US dollar functioned as a reserve currency, so it too became part of a nation's official international reserve assets. From 1944-1968, the US dollar was convertible into gold through the Federal Reserve System, but after 1968 only central banks could convert dollars into gold from official gold reserves, and after 1973 no individual or institution could convert US dollars into gold from official gold reserves. Since 1973, no major currencies have been convertible into gold from official gold reserves. Individuals and institutions must now buy gold in private markets, just like other commodities. Even though US dollars and other currencies are no longer convertible into gold from official gold reserves, they still can function as official international reserves. [edit]Purpose In a flexible exchange rate system, official international reserve assets allow a central bank to purchase the domestic currency, which is considered a liability for the central

bank (since it prints the money orfiat currency as IOUs). This action can stabilize the value of the domestic currency.[citation needed] Central banks throughout the world have sometimes cooperated in buying and selling official international reserves to attempt to influence exchange rates.[citation needed] [edit]Changes in reserves The quantity of foreign exchange reserves can change as a central bank implements monetary policy.[1] A central bank that implements a fixed exchange rate policy may face a situation where supply and demand would tend to push the value of the currency lower or higher (an increase in demand for the currency would tend to push its value higher, and a decrease lower). In a flexible exchange rate regime, these operations occur automatically, with the central bank clearing any excess demand or supply by purchasing or selling the foreign currency. Mixed exchange rate regimes ('dirty floats', target bands or similar variations) may require the use of foreign exchange operations (sterilized or unsterilized[clarification needed]) to maintain the targeted exchange rate within the prescribed limits . Foreign exchange operations that are unsterilized will cause an expansion or contraction in the amount of domestic currency in circulation, and hence directly affect monetary policy and inflation: An exchange rate target cannot be independent of an inflation target. Countries that do not target a specific exchange rate are said to have a floating exchange rate, and allow the market to set the exchange rate; for countries with floating exchange rates, other instruments of monetary policy are generally preferred and they may limit the type and amount of foreign exchange interventions. Even those central banks that strictly limit foreign exchange interventions, however, often recognize that currency markets can be volatile and may intervene to counter disruptive short-term movements. To maintain the same exchange rate if there is increased demand, the central bank can issue more of the domestic currency and purchase the foreign currency, which will increase the sum of foreign reserves. In this case, the currency's value is being held down; since (if there is no sterilization) the domestic money supply is increasing (money is being 'printed'), this may provoke domestic inflation (the value of the domestic currency falls relative to the value of goods and services). Since the amount of foreign reserves available to defend a weak currency (a currency in low demand) is limited, a foreign exchange crisis or devaluation could be the end result. For a currency in very high and rising demand, foreign exchange reserves can theoretically be continuously accumulated, although eventually the increased domestic

money supply will result in inflation and reduce the demand for the domestic currency (as its value relative to goods and services falls). In practice, some central banks, through open market operations aimed at preventing their currency from appreciating, can at the same time build substantial reserves. In practice, few central banks or currency regimes operate on such a simplistic level, and numerous other factors (domestic demand, production and productivity, imports and exports, relative prices of goods and services, etc) will affect the eventual outcome. As certain impacts (such as inflation) can take many months or even years to become evident, changes in foreign reserves and currency values in the short term may be quite large as different markets react to imperfect data. [edit]Costs, benefits, and criticisms Large reserves of foreign currency allow a government to manipulate exchange rates usually to stabilize the foreign exchange rates to provide a more favorable economic environment. In theory the manipulation of foreign currency exchange rates can provide the stability that a gold standard provides, but in practice this has not been the case. Also, the greater a country's foreign reserves, the better position it is in to defend itself from speculative attacks on the domestic currency. There are costs in maintaining large currency reserves. Fluctuations in exchange markets result in gains and losses in the purchasing power of reserves. Even in the absence of a currency crisis, fluctuations can result in huge losses. For example, China holds huge U.S. dollar-denominated assets, but if the U.S. dollar weakens on the exchange markets, the decline results in a relative loss of wealth for China. In addition to fluctuations in exchange rates, the purchasing power of fiat money decreases constantly due to devaluation through inflation. Therefore, a central bank must continually increase the amount of its reserves to maintain the same power to manipulate exchange rates. Reserves of foreign currency provide a small return in interest. However, this may be less than the reduction in purchasing power of that currency over the same period of time due to inflation, effectively resulting in a negative return known as the "quasi-fiscal cost". In addition, large currency reserves could have been invested in higher yielding assets. [edit]Excess reserves Foreign exchange reserves are important indicators of ability to repay foreign debt and for currency defense, and are used to determine credit ratings of nations, however, other government funds that are counted as liquid assets that can be applied to liabilities in

times of crisis include stabilization funds, otherwise known as sovereign wealth funds. If those were included, Norway, Singapore and Persian Gulf States would rank higher on these lists, and UAE's $1.3 trillion Abu Dhabi Investment Authority would be second after China. Apart from high foreign exchange reserves, Singapore also has significant government and sovereign wealth funds including Temasek Holdings, valued in excess of $145 billion and GIC, valued in excess of $330 billion. India is also planning to create its own investment firm from its foreign exchange reserves. On May 2011, an estimated that Asia has $3.5 trillion of foreign reserves or is around two-thirds of the world's reserves and a stark contrast to the indebteness in many developed Western economie Currency Exchange Advice on Overseas Currency Exchange By Susan Breslow Sardone, Guide See More About: money budget travel honeymoon planning

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Currency Foreign Exchange Exchange Calculator Forex Exchange Currency Exchange Rates Sponsored Links Book Cheap Flight TicketsBuy 1 Flight Ticket & Get 1 Free On All Bookings. Limited Time Offer! American Express CardsSave Upto 15 Lacs on flights with Amex Corporate Card Program. Apply! Is currency exchange something that concerns you when you're about to travel overseas? Outside of your home country, it's likely you will require local currency to get around and make small purchases (big ones normally can be charged). To do so, you will need to exchange your own currency (such as US Dollars or Euros) for coins and banknotes of another country. Since currency exchange rates vary from place to place and day to day, where and how you exchange currency can make a difference in your wallet. Currency Exchange Converter Before you travel, learn what the currency exchange rate is in the country you plan to visit by using the Universal Currency Converter. This utility provides an idea of the latest available exchange rates, based on the mid-point between buy and sell rates of large-value transactions in global currency markets. To Exchange Currency Before You Leave Home Many travelers, especially those flying a long distance and landing in a foreign country early in the morning or late at night when banks and currency exchange desks may be closed, prefer to acquire a small amount of foreign currency before they depart on a trip. Having the local equivalent of US $100 in your pocket is usually enough to pay for a cab ride to your destination, a snack, and small incidentals without having to search for a currency exchange open for business. In large cities, major banks and travel agencies sometimes feature a currency exchange desk. Some hotels also offer this as a courtesy, but their exchange rate is rarely as good as a bank's.


Where to Find the Best Currency Exchange Rates To get the best exchange rate, wait until you arrive at your destination. While most major airports feature a currency exchange desk, you are likely to get a better rate directly from an ATM machine affliated with a major bank. ATM cards most likely to work trouble-free overseas are those with a four-digit PIN number. Since you may be charged a usage fee by both the local bank and your home institution, it's advisable make one large instead of several small withdrawals whenever possible - and keep your cash in a safe place out of pickpockets' range. Using a Credit Card to Exchange Currency As long as you have a working PIN number, you can also use your credit or debit card to get cash overseas. Find out if there are credit card ATM machines where you will be traveling:

MasterCard/Cirrus ATM Locator Visa ATM Locator

Having a credit card is especially useful when you travel. With one, it's unnecessary to carry large sums of money. Use a credit card rather than cash to pay for larger expenses, such as hotel bills and major purchases, since you will have a receipt of the transaction. If a bill is disputed, your credit card company may be able to help you settle the matter when you get home. Do keep in mind, however, that the majority of credit card companies levy an additional fee for overseas usage. If you're not sure, check with your company before you leave home. Money for Travelers Without an ATM or Credit Card American Express offers American Express Gift Cards. Similar to a pre-paid debit card, these let buyers load up to $3,000 on a card for a nominal fee. Young people 18 or older who don't have credit cards and individuals with bad credit will find this handy while traveling. The TravelFunds Card is accepted in the same places as the American Express Card and can be used to withdraw up to $400 daily at ATMs with the American Express logo. Traveler's Checks As credit and ATM cards have become more popular, fewer and fewer people choose to go to the trouble of buying traveler's checks. Nonetheless, they remain a secure way to carry money.

What to Do with Leftover Currency In most cases, you'll have some foreign currency left over by the time you're ready to return home. Here's what you can do with it:

Spend it on gifts for yourselves, friends, or family at the airport dutyfree shop Donate it to charity. Find a place to do this at the airport or send it to UNICEF's Change for Good program, which helps children around the world Convert it back to your local currency at the airport Exchange it when you get home Keep it as a souvenir of your trip

When You Don't Have to Exchange Currency Merchants in some countries welcome American dollars instead of the local currency. This is common in a number of Caribbean nations, including the Bahamas. While this is a convenience, you are likely to pay less for goods and services in the local currency. Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity in 2007 - Final results December 2007 Every three years, the BIS coordinates a global central bank survey of foreign exchange and derivatives market activity on behalf of the Markets Committee and the Committee on the Global Financial System. The objective of the survey is to provide comprehensive and internationally consistent information on turnover and amounts of contracts outstanding in these markets. The exercise also serves as a benchmark for the semiannual OTC derivatives market statistics, which are limited to banks and dealers in the most important financial centres. The 2007 survey is the seventh one coordinated by the BIS. The first three surveys were limited to the foreign exchange markets (1989, 1992, 1995). Subsequently both the foreign exchange and the derivatives markets have been surveyed (1998, 2001, 2004, 2007). In addition, in 2007 data on credit default swaps were collected for the first time. For the survey, each participating central bank collects data from the banks and dealers in its jurisdiction and calculates aggregate national data. These are provided to the BIS, which compiles global aggregates. The number of participating countries has increased over time. The 2007 survey In April 2007, central banks and monetary authorities from 54 countries and jurisdictions collected data on turnover in traditional foreign exchange markets (those for spot, outright forwards and swaps) and in the OTC currency and interest rate derivatives markets.Preliminary results on daily turnover were published in September 2007, and an analysis of the results for the traditional foreign exchange markets was included in the

December 2007 issue of the BIS Quarterly Review. The 2007 survey also covered data on amounts outstanding and gross market values of OTC foreign exchange, interest rate, equity, commodity and credit derivatives (including credit default swaps) at the end of June 2007 whose preliminary results were released in November 2007. The full report on the Triennial Central Bank Surveywas published by the BIS in December 2007.

Foreign exchange may refer to:

foreign exchange markets, where money in one currency is exchanged for another Exchange rate, the price for which one currency is exchanged for another foreign exchange reserves, holdings of other countries' currencies retail forex platform, a trading platform Foreign exchange service (telecommunications), connection of a phone to a non-local office Foreign student exchange, a school program in which students study in another country for a time Foreign Exchange (1970 film), a British television film Foreign Exchange (2008 film), a 2008 film starring Jennifer Coolidge Foreign Exchange (TV series), television show made by Southern Star Entertainment Foreign Exchange (US TV series), a weekly public television show in the US, previously hosted by Fareed Zakaria Foreign Exchange (CNBC World), a television news series on CNBC World The Foreign Exchange, a hip-hop duo Foreign exchange risk, arises from the change in price of one currency against another International trade, the exchange of goods and services across national boundaries

Loans in foreign exchange General Operational Policies General Policy The Bank is prepared to finance, with foreign exchange, established percentages of the estimated total cost of projects. The percentages vary according to the country group to which the country that is the site of the proposed project belongs. Any financing in local

currency of the local cost component of a project will be in addition to the portion to be financed in foreign exchange. Also, in the case of projects which include cofinancing, such financing may be considered as part of the local contribution. Country Groups For the purpose of applying its operational policies, the Bank groups its borrowing member countries on the basis of their relative level of development within the region:

Group A. The more advanced countries: Argentina, Brazil, Mexico, and Venezuela. Group B. Middle developing countries: Chile, Colombia, and Peru. Group C. Countries with insufficient markets: The Bahamas, Barbados, Costa Rica, Jamaica, Panama, Suriname, Trinidad and Tobago, and Uruguay. Group D. The least-developed countries: Belize, Bolivia, Dominican Republic, Ecuador, El Salvador, Guatemala, Guyana, Haiti, Honduras, Nicaragua, and Paraguay.

Matrix With respect to the percentage of foreign exchange financing of total costs, the following matrix will apply: Country Group A B C D Maximum Percentage 60 70 80 90

In case of hybrid loans, with a fast-disbursing component as well as a long-term investment component, the matrix percentages referred to above will be applied to the investment component, while the fast-disbursing component will be financed in its entirety and in foreign exchange. Financing Above Established Percentages The percentages of foreign exchange financing of total costs indicated above are those that the Bank would apply regularly and consistently. At the borrower's request, the

financing in foreign exchange could exceed these percentages if the cost of the goods and services that would have to be imported for a specific project exceeds the applicable level, provided that this does not mean a substantial reduction in the local contribution and provided that it is shown that no alternative source of financing exists on reasonable terms. For no category the share of foreign exchange is to exceed 90%. The levels of financing according to the various country groups will be supplemented with an additional ten-percentage-point increase for projects of programs that are geographically targeted to poor beneficiaries or that a significant majority of the beneficiaries of the projects or programs, according to conditions prevailing in each country, are poor. However, in no case should the total financing exceed 90% - NRI

1. What are the different types of accounts that an NRI can open in India? Ans.:NRI can open the following accounts : In Rupees :NRE & NRO In FC :- FCNR 2. Can an NRI maintain multiple accounts with different banks in India, simultaneously? Ans.:Yes, there is no prohibition to open and maintain multiple accounts a/cs. 3. Can an NRI open joint accounts with one or more NRIs? Ans.:Yes. 4. Can an NRI open joint accounts with residents? Ans.:NRIs can not open NRE & FCNR jointly with local residents. However, they can open and maintain NRO Account jointly with local residents. 5. Should all the NRI desirous of opening joint accounts be residing in the same country? Ans.:No, they can be residing in different countries, also..

6. Can an NRI accounts be from aboad also? Ans.:Yes.An NRI Can also open accounts from abroad by sending duly filled and signed AOF duly attested by Indian Consulate along with attested copies of passport and Visa, etc. 7. Can an NRI open an account with Zero balance ? Ans.:Yes, an individual taking up an employment, business, vocation etc. can complete the account opening formalities prior to going abroad with zero balance. Subsequently, he must remit funds to make the account operative within a reasonable time, whereafter only cheque book will be issued. 8. Can an NRI give Power of Attorney to a resident to operate his accounts and for making investments on his behalf? Ans.:Yes, an NRI can appoint a Power of Attorney holder to make local payment from his NRE / NRO a/cs. and also investments on his / her behalf. 9. What are the restrictions imposed on the Power of Attorney? Ans.:A Power of Attorney holder cannot do the following acts : Open and close NRI a/cs. in the name of NRI Repatriate funds from a/c. in the form of DD/TT etc.., unless specified in P.A. Give gifts. Transfer funds to NRE accounts other then that of Principals. Cannot raise loans/execute documents on behalf of NRI. Cannot tender FC/FCTC.

10. How much foreign currency (FC) can an NRI bring along with him on his/ her visit to India, without custom declaration form(CDF) ? Ans.:An individual NRI can bring USD 10,000/- or equivalent (in the form of FCTC/FC)of which maximum USD 5000/-can be in the form of currency notes without declaring the same in CDF.Any amount in excess of the above limits needs to be declared in CDF to the customs.The balance amount or even the entire amount can be in the form of TCs. 11. Can a relative/P.A. holder or other resident deposit such FC on behalf of the NRI ? Ans.:No, the NRI has to come personally alongwith his/her passport for depositing to FC/FCTCs.


12. Can an NRI deposit local funds into NRE account ? Ans.:No, only credits coming from abroad in the form of DDs/TTs/MTs/FCs/TCs etc. can be deposited in NRE a/c. Local money has to be credited to NRO account of an NRI. 13. Is interest earned on NRE/NRNR/FCNR/NRO a/cs. taxable ? Ans.:No tax is applicable to interest earned on NRE/FCNR & NRNR a/cs. However, interest earned on NRO a/cs. is subject to TDS as per extant guidelines. 14. What is the rate of TDS on NRO accounts ? Ans.:Banks have obligation under Sec. 195 of Income Tax Act, 1961to deduct tax at source in respect of interest income of Non Resident Indians. The rate of TDS is specified in the Finance Act, every year. Accordingly, as on date TDS applicability is as under: Interest earned up to Rs. 10 lacs TDS @ 30.90% Interest earned beyond Rs. 10 lacs TDS @ 33.99% inclusive of sur-charge. However, applicability of TDS is subject to Double Taxation Avoidance Agreement (DTAA) that India has entered with many countries. 15. Is interest on NRO account repatriable ? Ans.:Yes, interest earned on NRO a/cs. can be repatriated or credited to NRE/FCNR accounts subject to payment of tax. 16. Can proceeds of FCNR be withdrawn in Foreign Currency/FCTC ? Ans.:NRI can withdraw upto USD 2000/- in currency notes and balance in TCs or the entire amount in TCs/Drafts or TTs. 17. Are there any charges while remitting the FCNR proceeds abroad ? Ans.:No.commission is levied while remitting such proceeds on maturity. 18. If the NRE/FCNR/NRNR deposits are withdrawn before the maturity date, what will be the loss? Ans.:If the deposit has not run for the minimum maturity - No interest. Otherwise, the interest at the rate applicable for the period the deposit has run less 0.5%. is paid. 19. Can the NRI deposits be prematurely extended to get benefit of higher interest? Ans.:Yes, the deposit will earn interest without penalty for the period it has run, provided it has run for the minimum maturity period and thereafter at the higher interest

20. What is the interest rate on loans against FCNR to the depositors himself and to third parties? Ans.:Presently in both the cases, it is 1 percent below PLR 21. Can loans against NRE/FCNR be repaid from local sources? Ans.:Yes. 22. Does your Bank issue FCNR(B) Receipts instantly on presentation of Foreign Currency/TCs/draft and cheques? Ans.:Yes, In case of presentation of foreign currency, TCs and drafts, FCNR(B) receipts are issued on the same day itself.However, premature closure of such deposits or loans there against will be permitted only on realization of instruments deposited for creation of deposits.In case of personal cheques, however, FCNR(B) receipts are issued only after realization proceeds, i.e. after sighting credit in our Nostro Accounts. 23. Can FCNR(B) receipt be issued against Rupee Draft purchased from Exchange Houses with whom UBI has Rupee Drawing Arrangements? Ans.:Yes However, the value date of the FCNR(B) receipt will be date of conversion of the Rupee funds into FC. In case of NRE deposit created out of the proceeds of such drafts, value date can be given as of the date of the draft. 24. Will the Bank renew our NRE /FCNR(B) deposits automatically ? Ans.:Yes, provided automatic renewal instruction are given at the time of opening the deposit in which case, it will be automatically renewed for an identical period 25. Is nomination permitted in NRI a/cs? Ans.:Yes, NRIs can nominate either a resident or a non-resident as Nominee. However, only one nominee is permitted per account. Nominee can also be a minor in which case, guardian has to be appointed to receive payment on minor's behalf. 26. What are the formalities in death claim settlement? Ans.:If the nominee, either resident or non-resident, plans to utilize the funds locally payment will be made in Indian Rupees. If, however the nominee is an NRI and desires to repatriate the amount, the nominee will have to comply with LEG formalities 27. What are LEG formalities? Ans.:The NRI nominee has to submit an application in form LEG along with death

certificate.This compliance requires only if, the deceased account holder should have been an NRI at the time of his death and the nominee also continues to be an NRI at the time of filing the claim. Further, the nominee has to give suitable declaration duly signed and witnessed by all the legal heirs of the deceased NRI.On completion of these formalities, the Bank will credit the amount of deposits to the nominees NRE / FCNR account or repatriate it abroad as per his instruction.The case not conforming to the above needs approval of RBI. 28. Can NRI invest in immovable properties on repatriation basis? Ans.:Yes, Repatriation benefit is available for 2 residential houses. The purchase should be out of funds remitted from aboard or out of NRE/FCNR a/cs, in accordance with the provisions of FERA/FEMA. 29. Can NRI invest in immovable Proprietory/Partnership concern? Ans.:Yes, NRI can invest in capital of proprietory and partnership firms engaged in manufacturing, commerce or trading activities on a non-repatriation basis. 30. Can NRI invest in shares/debentures of Indian Cos., and other securities on a non-repatriation? Ans.:Yes, NRIs can invest without any limit on non-repatriation basis in shares and convertible debentures of Indian Cos., issued either by public issue or private placement or right issues. NRI can also purchase on non-repatriation basis dated Govt. Securities (other than bearer securities). Treasury bills., units of domestic mutual funds, units of money market mutual funds . 31. Can NRIs invest in Govt. Securities etc. on repatriation basis/ Ans.:Yes. NRIs can invest on repatriation basis in:

Govt. dated securities (other than bearer sec), Treasury bills and units of domestic Mutual funds. Bonds issued by PSUs Shares in Public Sector Enterprise disinvestments by Govt. of India.

Fund for such investment are to be received through foreign inward remittance or to debit of NRE/FCNR a/cs. The above securities can be sold through stock brokers on a recognized stock exchange or tender units of mutual funds to the issuer for repurchase or for payment of maturity proceeds or tender Govt. dated securities/Treasury Bills to RBI for payment of maturity proceeds. The sale proceeds can be repatriated net of Indian Tax.


32. What are the rules pertaining to investments by NRIs in shares and debentures of Indian Cos., on repatriation? Ans.:NRIs can invest in shares & debentures of Indian Cos on repatriation basis as per general permission granted by RBI provided,

The investee company is not engaged in any activity outside the automatic route of RBI Subject to sectoral caps on investment as prescribed by RBI Funds for investment are received through foreign inward remittance or to the debit of NRE/FCNR accounts. Upon disinvestments, on a recognised stock exchange in India through stock broker at ruling market prices, the proceeds can be repatriated net of Indian taxes.

33. Can NRI place deposits with companies on repatriation basis/ Ans.:Yes, provided the company accepts the deposits under public deposit scheme for period not exceeding 3 years and has obtained necessary ratings etc. RETURNING INDIANS 34. What happened to accounts of the NRI his/her return to India? Ans.:A returning Indian's NRE/FCNR accounts will be designated as Resident account. However, they will continue to run till maturity at the contracted rate of interest. 35. Is a NRI subject to tax after returning to India? Ans.:Yes, NRIs earnings are subject to tax laws of the country. 36. Can a returning Indian maintain Foreign Currency account/ Ans.:Yes, the returning NRI get his NRE,FCNR a/cs converted into RFC a/cs on maturity. 37. Who can open RFC account? Ans.:A returning NRI who was resident outside India earlier and are returning now for permanent stay are permitted to open RFC account. 38. What are the benefits of RFC accounts? Ans.:The benefits of RFC accounts are: In case of conversion from FCNR(B) accounts there is no exchange loss. Balance in RFC account can be used for local payments and can be remitted abroad for all bonafide purposes. In case the NRI was residing abroad continuously for a period of 9 years out of previous 10 years, then no tax on interest earned of RFC accounts for next 2

years. In the event of the returning Indian regarding his NRI status the balances in his RFC account can be reconverted into NRE/FCNR(B) deposits.

Question related to Foreign Exchange/Foreign Trip /Spending money in Foreign country/Bringing money to India/Gift

1)How much foreign exchange is available for a business trip? Authorised dealers can release foreign exchange up to US$25,000 for a business trip to any country other than Nepal and Bhutan. Release of foreign exchange exceeding US$25,000 for travel abroad (other than Nepal and Bhutan) for business purposes, irrespective of period of stay, requires prior permission from Reserve Bank. Visits in connection with attending of an international conference, seminar, specialised training, study tour, apprentice training, etc., are treated as business visits.

2)Can residents obtain foreign exchange for medical treatment outside India? For medical treatment abroad exchange can be released upto USD 100,000/- based on a simple declaration from the customer in addition to submission of an application form and Form A2 as per the recent liberalisation policy of The Reserve Bank of India.

3)How much exchange is available for studies outside India? Release of Foreign exchange for studies abroad has now been increased to USD 100,000/based on a simple declaration from the customer in addition to submission of an application form and Form A2 as per the recent liberalisation policy of The Reserve Bank of India.


4)How much foreign exchange can one buy when going for tourism to a country outside India? In connection with private visits abroad, viz., for tourism purposes, etc., foreign exchange up to US$10,000, in any one calendar year may be obtained from an authorised dealer. The ceiling of US$10,000 is applicable in aggregate and foreign exchange may be obtained for one or more than one visits provided the aggregate foreign exchange availed of in one calendar year does not exceed the prescribed ceiling of US$10,000 {The facility was earlier called B.T.Q or F.T.S.}. This US$10,000 (BTQ) can be availed of by a person alongwith foreign exchange for travel abroad for any purpose, including for employment or immigration or studies. However, no foreign exchange is available for visit to Nepal and/or Bhutan for any purpose. The same can be obtained based on a simple declaration from the customer in addition to submission of an application form and Form A2 as per the recent liberalisation policy of the Reserve Bank of India.

5)How much foreign exchange is available to a person going abroad on employment? Person going abroad for employment can draw Foreign Exchange upto USD 100,000/- based on a simple declaration from the customer in addition to submission of an application form and Form A2 as per the recent liberalisation policy of The Reserve Bank of India.

6)How much foreign exchange is available to a person going abroad on immigration? Persons going abroad for immigration can draw foreign exchange upto USD 100,000/- based on a simple declaration from the customer in addition to submission of an application form and Form A2 as per the recent liberalisation policy of The Reserve Bank of India.

7)Is there any purpose for which going abroad requires prior approval from the Reserve Bank or Govt. of India? Dance troupes, artistes, etc., who wish to undertake cultural tours abroad, should obtain prior approval from the Ministry of Human Resources Development, Government of India, New Delhi.


8)From where one can buy foreign exchange? Foreign exchange can be purchased from most branches of HDFC Bank. The Foreign Exchange can be taken as Currency notes and Traveller's Cheques besides Foreign Currency DDs and Telegraphic Transfers depending on the purpose of travel.

9)How much foreign exchange can be purchased in foreign currency notes while buying exchange for travel abroad? Travellers are allowed to purchase foreign currency notes/coins only up to US$ 3000. Balance amount can be taken in the form of Traveller's Cheque, banker's draft or Forexplus card. Exceptions to this are (a) travellers proceeding to Iraq and Libya can draw foreign exchange in the form of foreign currency notes and coins not exceeding US$ 5000 or its equivalent; (b) travellers proceeding to the Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States can draw entire foreign exchange released in form of foreign currency notes or coins.

10)How much in advance one can buy foreign exchange for travel abroad? The foreign exchange acquired for any purpose has to be used within 60 days of purchase. In case it is not possible to use the foreign exchange within the period of 60 days it should be surrendered to an authorised dealer.

11)How much foreign exchange can one send as gift / donation to a person resident outside India? Any person resident in India under the liberalised remittance scheme can remit upto US$ 200,000 in an finanacial year as a gift to a person residing outside India or as donation to a charitable / educational / religious / cultural organisation outside India. This remittance can be done only under the liberalised remittance scheme and is meant for individual only

12)While coming into India how much foreign exchange can be brought in by NRIs? An NRI coming into India from abroad can bring with him foreign exchange without any limit provided if foreign currency notes, travellers cheques, Forexplus Card exceed US$ 10,000/- or its equivalent and/or the value of foreign currency exceeds US$ 5,000/- or its equivalent, it should be declared to the Customs Authorities at the Airport in the Currency Declaration Form (CDF), on arrival in India.


13)Can a Resident Indian maintain Foreign currency accounts in India? A resident Indian can maintain a Foreign Currency (Domestic) Account and deposit Foreign Exchange acquired from any of the sources approved by Reserve bank of India e.g. . Unspent BTQ, honorarium or gift / payment for services while on a visit outside India or received from a person not resident in India or who is on visit to India in settlement of a lawful obligation etc.

14)Can a Non Union Bank of India customer avail of Foreign Exchange Services for purpose of Travel or make remittances overseas? Yes, a Non Union Bank of India Customer can take foreign exchange for any branch dealing in foreign exchange. You can avail of Foreign Exchange against paying Cash, Cheque or Pay Order / Demand Draft. The Cash will be accepted upto Rs. 50,000/- (as per Indian Tax Laws) and any amount above Rs. 50,000/- will against Pay Order or Cheque after clearance of the same. You will have to carry required Documentary Proof for issuance of Foreign Exchange. Please check with your nearest branch for documentation required.

Union Currency Futures About Currency Futures Currency futures are standardized, exchange-traded contracts to buy or sell a currency at a specific price sometime in the future. As an essential tool to manage the risks associated with changing currency valuations, Currency futures allow market participants to lock in a currency rate for a specific time period. At the same time, Currency futures offer a means of potential profits for those who wish to take a view on currency fluctuations, and in doing so accept the risk that businesses and financial institutions wish to offset with electronic trading and efficient risk management systems. Exchange traded currency future allow Corporate and Households alike to hedge their currency risk, to protect or increase investment returns and to trade in USDINR, EURINR, GBPINR and JPYINR without the need to have an underlying exposure Product Features Comparative features for four-permitted currency pair is given below. USD-INR EUR-INR GBP-INR JPY-INR



USD-Indian Rupee (USDINR)

Euro-Indian Rupee (EURINR)

Pound Sterling Indian Rupee (GBPINR)

Japanese Yen Indian Rupee (JPYINR)

Trading Hours Size of the contract

9 a.m. to 5 p.m

9 a.m. to 5 p.m

9 a.m. to 5 p.m

9 a.m. to 5 p.m

USD 1,000

Euro 1,000

GBP 1,000

Japanese Yen 1,00,000


The contract The contract would be would be quoted quoted in rupee in rupee terms. terms. However, the However, the outstanding outstanding positions would positions would be in USD terms. be in Euro terms. The maximum maturity of the contract would be 12 months. All monthly maturities from 1 to 12 months would be made available. Cash settled in Indian Rupee. The settlement price would be

The contract would be quoted in rupee terms. However, the outstanding positions would be in Pound Sterling terms.

The contract would be quoted in rupee terms. However, the outstanding positions would be in Japanese Yen terms.

The maximum maturity of the Tenor of the contract contract would be 12 months. All monthly maturities from 1 to 12 months would be made available. Cash settled in Indian Rupee. The settlement price would be

The maximum maturity of the contract would be 12 months. All monthly maturities from 1 to 12 months would be made available. Cash settled in Indian Rupee. GBPINR Exchange rate

The maximum maturity of the contract would be 12 months. All monthly maturities from 1 to 12 months would be made available. Cash settled in Indian Rupee. JPYINR Exchange rate published by

Available contracts

Settlement mechanism



the Reserve Bank Reference Rate for USDINR on the date of expiry.

the Reserve Bank Reference Rate for EURINR on the date of expiry.

published by the Reserve Bank in its Press Release captioned RBI Reference Rate for US$ and Euro.

the Reserve Bank in its Press Release captioned RBI Reference Rate for US$ and Euro.

Final settlement day

The contract would expire on the last working day (excluding Saturdays) of the month. The last working day would be taken to be the same as that for Interbank Settlements in Mumbai. The rules for Interbank Settlements, including those for known holidays and subsequently declared holiday would be those as laid down by FEDAI. The initial margin so computed would be subject to a minimum of 1.75% on the first day of trading and 1% thereafter. The calendar spread margin shall be at a value of ` 400 for a spread of 1 month; ` 500 for a spread of 2 months, ` 800 for a spread of 3 months and `1000 for a spread or 4 The initial margin so computed would be subject to a minimum of 2.80% on the first day of trading and 2% thereafter. The calendar spread margin shall be at a value of ` 700 for a spread ` 1000 for a spread of 2 months and `1500 for a spread of 3 months or more. The benefit for a

Initial Margin

The initial margin so computed would be subject to a minimum of 3.20% on the first day of trading and 2% thereafter. The calendar spread margin shall be at a value of `1500 for a spread of 1 month; `1800 for a spread of 2 months and ` 2000 for a spread of 3 months or more. The benefit for a calendar

The initial margin so computed would be subject to a minimum of 4.50% on the first day of trading and 2.30% thereafter.

Calendar spread margin

The calendar spread margin shall be at a value of ` 600 for a spread of 1 month; ` 1000 for a spread of 2 months and `1500 for a spread of 3 months or more. The benefit for a calendar spread would continue till

months or more. . The benefit for a calendar spread would continue till expiry of the near month contract. This is subject to change from time to time Extreme loss margin of 1% on the mark to market value of the gross open positions The gross open positions of the client across all contracts shall not exceed 15% of the total open interest or USD 100 million whichever is higher.

calendar spread would continue till expiry of the near month contract. This is subject to change from time to time

spread would continue till expiry of the near month contract. This is subject to change from time to time

expiry of the near month contract. This is subject to change from time to time

Extreme Loss margin

Extreme loss margin of 0.3% on the mark to market value of the gross open positions The gross open positions of the client across all contracts shall not exceed 15% of the total open interest or EUR 50 million whichever is higher. The gross open positions of the client across all contracts shall not exceed 6% of the total open

Extreme loss margin of 0.5% on the mark to market value of the gross open positions The gross open positions of the client across all contracts shall not exceed 15% of the total open interest or GBP 50 million whichever is higher. The gross open positions of the client across all contracts shall not exceed 6% of the total open

Extreme loss margin of 0.7% on the mark to market value of the gross open positions

Position Limits for Bank

The gross open positions of the client across all contracts shall not exceed 15% of the total open interest or JPY 1000 million whichever is higher.

The gross open Client Level positions of the client across all Position contracts shall Limit not exceed 6% of the total open

The gross open positions of the client across all contracts shall not exceed 6% of the total open interest

interest or USD 10 million whichever is higher.

interest or EUR 5 million whichever is higher.

interest or GBP 5 million whichever is higher.

or JPY 200 million whichever is higher.

Eligibility Only 'persons resident in India' may purchase or sell currency futures to hedge an exposure to foreign exchange rate risk or otherwise. The product is offered to the following categories of customers: a. All Exporters/Importers having a rating of CR5 and better b. Large Corporate/SME A/c holders having a rating of CR5 and better c. Any other customer recommended by the Branch Manager based on their relationship with our Bank. Authorized Branches The product is being offered to all eligible customers through all our Branches. However, Treasury Branch, Mumbai will be the controlling Branch. Opening of Currency Futures Trading Account Treasury Branch shall issue a Unique Client Code (UCC) to the Customer duly authenticated by the respective exchange on which customer wish to trade. The UCC will be required by the customers for trading in Currency Futures. Mode of Trading Online. Position Limits Our Bank has fixed the category-wise upper limits as mentioned below subject to availability of the margins:


Sr. No. 1. 2.

Customer Type Individuals, Proprietorship Firms, HUFs Clients other than above category

Maximum Limit USD 1,000,000 - equivalent USD 5,000,000 - equivalent

Margins can be deposited in Cash or Fixed Deposit Receipts Type of Margins: 1. Initial Margin Minimum 1% of the Notional Value of Contract or higher as per Exchange requirement based on the volatility of the market. 2. Extreme Loss Margin Minimum 1% on the mark to market value of the gross open position or as specified by the exchange from time to time. Mark to Market Settlement The mark to market gain and losses shall be settled in cash before the start of trading on the next day i.e. on T+0 day basis. After all the KYC formalities are done, Bank will open clients account in Union Currency Futures and issue Unique Client Code to each client. All the details will be uploaded to the desired exchange of the client. Treatment of Inactive accounts process of reactivation: Till the margin money is deposited such account will be marked as Inactive Also if a customer fails to fulfill KYC or any other regulatory requirement from time to time, even though the margin money is with the Bank, its account status will be treated as Inactive and will be prohibited from trading till all the requirements are fulfilled. If the client has no open position & is not trading for more than 6 months then the account will be treated as inactive & will be suspended for trading. If the client is desirous of reactivating the account post the suspension will have to send the written request for reactivation. Documentation The following documents are required to be submitted for opening of Currency Futures Trading account, which will be as per KYC norms and Exchange requirements:1. Client Registration Form (Separate forms for Individuals/Corporate). 2. Risk Disclosure Document

3. Agreement between Trading member and Client 4. Undertaking cum Indemnity for direct access to Banks dealing room 5. Authorization letter to Bank for sending Contract Notes/Statements electronically All these documents are attached herewith Currency Futures Application Form.pdf Brokerage/Charges

No Account Opening charges Minimal Brokerage Charges No Handling Charges (For initial one year period) Free Online Trading Exchange platform (For initial one year period) Stamp duty as applicable.

Reports Digitally Signed Contract Notes Daily Activity Report through e-mail Risk Disclosures As Currency Futures permit trading without a need of underlying, it will create open position to the customers. As the price of currency is highly volatile, it may entail heavy losses in the form of losing the margin deposited by the client. The customers are advised to read the Risk Disclosure document to know about the risks involved in the Currency Futures trading. In case of any clarification/grievances, please contact: Derivatives Back Office, Union Bank of India, 5th Floor, Treasury Branch, Union Bank Bhavan, 239, Vidhan Bhavan Marg, Nariman Point, Mumbai 400 021 Tel. No. 022-22892312, 022-22892343 & 022-22892350 Email:


Position Maintaining Branches

Following are the position maintaining A category branches of our Bank: 1) Treasury Branch, Mumbai 2) Overseas Branch, Ernakulum The details of foreign currency accounts maintained by them are furnished in Annexure 28(1).

Disclaimer: Currency Futures are subject to market risk. Please read the Risk Disclosure Document and Investors' Rights and Obligations carefully before dealing in Currency Futures. In pursuant to SEBI circular no. SEBI/MRD/SE/Cir-42/2003 dated 19 November 2003, the Bank wishes to disclose that the bank is engaged in dealing in Currency Futures for its proprietary book in addition to offering the product for the Client. SEBI Reg. No.: NSE: INE231308946; MCX-SX: INE261314038; USE: INE271382546 | Membership Code: NSE: 13089; MCX-SX: 1013; USE: 13825 Compliance Officer - Mr. Kanekal Chandrasekhar Telephone # 022 -22892307 Email address:-

TREASURY PRODUCTS & SERVICES 1. Forward Contract It is a contract between the bank and its customers in which the exchange/conversion of currencies we could take place at future date at a rate of exchange in advance under the contract. The essential idea of entering into a forward contract is to peg the price and thereby avoid the price like. Forward Rates = spot rate +/- premium/discount

2. FRA Forward Rate Agreement A The FRA is an agreement between the Bank and a Customer to pay or receive the difference (called settlement money) between an agreed fixed rate (FRA rate) and the interest rate prevailing on stipulated future date (the fixing date) based on a notional amount for an agreed period (the contract period). In short, this is a contract whereby interest rate is fixed now for a future period. The basic purpose of the FRA is to hedge the interest rate risk. For example, if a borrower is going to borrow FC loan for 6 months at LIBOR rate after 3 months, he can buy an FRA whereby he can fix interest rate for the loan.

3. IRS Interest Rate Swap It is a financial transaction in which two counterparties agree to exchange streams of cash flows throughout the life of contract in which one party pays a fixed interest rate on a notional principal and the other pays a floating rate on the same sum. The basic purpose of IRS is to hedge the interest rate risk of constituents and enable them to structure the asset/liability profile best suited to their respective cash flows.

4. CURRENCY SWAP It is an agreement between two parties to exchange obligations in different currencies at the beginning, during the tenure and at the end of the transaction. At the start, initial principal is exchanged, though not obligatory. Periodic interest payments (either fixed or floating) are exchanged through out the life of the contract. The principal is exchanged invariably on termination at the exchange rate decided at the start of the transaction. By means of currency swap, the counterparties can reduce the cost of funding.


5. OPTION It is a contract between the bank and its customers in which the customer has the right to buy/sell a specified amount of underlying asset at fixed price within a specific period of time, but has no obligation to do so. In this contract, the customer has to pay specified amount upfront to the counterparty which is known as premium. This is in contrast of the forward contract in which both parties have a binding contract. This is a facility offered to customers to enable them to book Forward Contracts in Cross Currencies at a target rate or price. This facility helps the customer to encash the currency movements in late European market, New York market and early Asian market. The minimum amount of the contract is 250,000/- in respective base currencies (for eg. USD, EUR & GBP).