CONTENTS

 Introduction to foreign exchange.

 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

Unilateral method Bilateral method

1 • Intervention • Payment agreements
1
2 • Restriction

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.
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