Definition of foreign exchange control. Features. Objectives. Methods. FERA. FEMA. Letter of credit. INCO terms. Documents used in foreign trade. Definition of foreign exchange control
“Foreign Exchange Control” is a method of state
intervention in the imports an Exports of the country, so that the adverse Balance of payments may be corrected”. Here the government restricts the free play of Inflow and outflow of capital and the exchange rate of currencies. Features of foreign exchange control
1 Control over the FEM.
2 License for dealings.
3 Regulation on imports.
4 Surrender of foreign exchange earnings.
5 Deformation of exchange rate.
6 Monopoly of control an regulation.
7 Authority parties.
8 Depositor from the export.
1. To conserve foreign exchange 2. To correct adverse balance of payment 3. To ensure proper utilization of foreign currency 4. To prevent the flight of capital 5. To maintain exchange stability 6. To control speculation 7. To prevent imports of non essential items 8. To protect domestic policies and industries. 9. To regulate foreign companies on foreign dealings 10. To facilitate trade on reciprocal basis 11. To freeze investment abroad 12. To help the government 13. To prevent overvalued and undervalued currencies Methods of exchange control
3 • Regulation of bank rate policy • Clearing agreements
2 4 • Regulation of import and export
5 • Multiple exchange rate system
3 • Standstill agreements 6 • Tariffs and quatates • Operation of exchange satisfaction • Compensation or private 7 fund 4 agreements • Blocked account process S Foreign Exchange & Regulation Act 1999 (FERA)
Foreign Exchange Regulation Act is a legislation that
came into existence in 1973 with the purpose to regulate certain dealings in foreign exchange, impose restrictions on certain kinds of payments and to monitor the transactions impinging the foreign exchange and the import and export of currency. Foreign Exchange & Management Act 1999 (FEMA)
The FEMA act, 1999 is a law to replace the draconian FERA
Act, 1973. The FERA act was enacted in 1973 in the backdrop of acute shortage of foreign exchange in the country and was subsequently reviewed in 1993.Several amendments were enacted as part of the on going process of economic liberalization relating to the foreign Investments and foreign trade for closer interaction with world economy. FEMA was enacted to replace FERA. Finally the FEMA came into force from January 1,2000. Objectives of FEMA To facilitate the external trade and payment. 1 To promote the orderly development and maintenance of foreign exchange market. 2 The regulation of foreign capital in India and to remove imbalance of payment. 3 Regulation of employment business and 4 investment of non-resident and payment of foreign payments.
5 More transparent law. 1 Dealings in foreign exchange.
2 Holding of foreign exchange.
3 Current account transaction.
4 Capital account transaction.
5 Exports of goods and services.
6 Administration of the act.
7 Exemption from realization and
repatriation.
8 Realization and repatriation of
foreign exchange. Letter of credit
• Meaning: LOC is a letter from a bank guaranteeing that a buyer’s
payment to a seller will be received on time and for the correct amount. Parties involved: 1. Applicant. 2. Issuing Bank. 3. Beneficiary. 4. Advising Bank.
Other part is involved in loc :
5. Confirming Bank 6. Negotiating Bank 7. Paying Bank 8. Reimbursement Bank Types Of LOC 1. Bills of exchange. 2. Pro- form invoice. 3. Export and import license. 4. Insurance. 5. Consular invoice. 6. Letter of credit (LOC). 7. Commercial invoice. 8. Inspection certificate. 9. Certificate of origin. 10. Packaging list. 11. Bill of lading. 1 2 3