Assignment on Foreign Exchange Banking at Basic Bank Limited
Subject: Economics, Finance | Topics:


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

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

Back Ground of Bank’s Involvement

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

  • Risk of non-delivery of goods.
  • Risk of receiving sub standard goods.
  • Risk of fraud in goods.

For the seller the following risk is involved-

  • Risk of non-payment.

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


In case of Import, the importers are asked by their exporters to open a letter of credit. So that their payment against goods is ensured.

Letter of Credit (L/C)

Letter of Credit (L/C) is a payment guarantee to the seller by the buyer’s bank. It is in fact, a Credit Contract whereby the buyer’s bank is committed (on behalf of the buyer) to place an agreed amount of money at the seller’s disposal under some agreed conditions. If the conditions of the credit do not require for presentation of specified documents, it is called Clean Credit. On the contrary, if the presentation of specified documents is obligatory, the credit is called a Documentary Credit.

Buyers and sellers enter into contracts for buying and selling goods/ services and the buyer instructs his bank to issue L/C in favour of the seller. Here bank assumes fiduciary function between the buyer and seller.

Types of L/C

BASIC Bank Mirpur branch deals with two types of L/C. These are-

  1. Sight L/C
  2. Deferred L/C.

Parties To Letter of Credit

The following parties are involved to a letter of credit, namely-

Obligatory Parties are

a)         Importer/ Buyer/ Applicant

b)        Opening Bank/ Issuing bank

c)         Advising Bank/ Notifying Bank

d)        Exporter/ Seller/ Beneficiary

Optional Parties (In case of need) are

e)         Negotiating Bank

f)         Confirming Bank

g)        Paying/ Reimbursing bank

 a.      Applicant

The person or body (customer Of the bank) who requests the bank (opening bank) to issue letter of credit.

 b.      Opening Bank / Issuing Bank

The bank that opens/issues letter of credit on behalf of the applicant/importer.

 c.       Advising Bank/ Notifying Bank

The bank through which the L/C IS advised to the beneficiary (exporter).

 d.      Exporter/ Seller/ Beneficiary

Beneficiary of the L/C is the party in whose favour the letter of credit is issued. Usually they are the seller or exporter.

 e.       Confirming Bank

The bank, which under instruction in the letter of credit, adds their irrevocable undertaking to that of the issuing bank. It is done at the request of the issuing bank having arrangement with them. The confirmation constitutes a definite undertaking on the part of confirming bank in addition to that of issuing bank.

 f.       Negotiating Bank

The bank that negotiates document and pays the amount to the beneficiary when presented complying credit terms. If the negotiation of the documents is not restricted to a particular bank in the L/C, normally negotiating bank is the banker of the beneficiary.

 g.      Reimbursing / Paying Bank

The bank nominated in the credit by the issuing bank to make payment against stipulated documents, complying with the credit terms. Normally issuing bank maintains account with the reimbursing bank.

Necessity of L/C for Importing Goods

An importer can purchase the goods directly up to the limit UD$ 5000 from the exporter without opening a L/C through Bank Draft. For releasing the goods from the custom authority by the importer, bank will certify.

Import Procedure

An importer is required to have the following formalities to import the goods through BASIC Bank-

  • An account with BASIC Bank Mirpur Branch
  • Import Registration Certificate (IRC)
  • Tax Paying Identification (TIN) Number
  • Proforma Invoice/ Indent
  • Membership Certificate
  • LCA (Letter of Credit Application) form duly attested
  • One set of IMP Form
  • Insurance Cover note with money receipt
  • Others

Import Mechanism

To import, a person should be competent to be an ‘Importer’. According to Import and Export Control Act, 1950 the Office of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a letter of credit authorization (LCA) from Bangladesh Bank. And then a person becomes a qualified importer. He is the person who requests or instructs the opening bank to open an L/C. He is also called opener or applicant of the credit.

Importer’s Application for L/C Limit

To have an import L/C limit, an importer submits an application to the Foreign Exchange wing of BASIC bank Mirpur branch furnishing the followings-

  1. Full particulars of bank account
  2. Nature of business
  3. Required amount of limit
  4. Payment terms and conditions
  5. Goods to be imported
  6. Offered security
  7. Repayment schedule

A credit Officer scrutinizes this application and accordingly prepares a proposal (CLP) and forwards it to the Head Office Credit Committee (HOCC). The Committee, if satisfied, sanctions the limit and returns back to the branch. Thus the importer is entitled for the limit.

L/C Application

BASIC provides a printed form for opening a L/C to the importer. A special adhesive stamp is affixed on the form.  While opening, the stamp is cancelled. Usually the importer expresses his desire to open a L/C quoting the amount of margin in percentage. The importer gives the following details-

  •   Full name and address of the applicant.
  •   Date and place of expiry of the credit
  •   Applicant’s A/C number
  •   Amount (both in figure and word)
  •   The mode of transmission of document (SWIFT/ Courier/ Telex)
  •   Confirmation of credit to the beneficiary (requested or not requested)
  •   Partial shipment is allowed or not
  •   The type of loading (loading on board)
  •   Brief description of the goods to be imported with HS code no.

  Credit available with by sight payment/ by acceptance/ by negotiation/ by deferred payment at against the documents detailed herein/ and beneficiaries draft at on.

  •   The time bar within which the document should be presented.
  •   Sales terms (FOB/ C &F/ CIF)
  •   Shipping Mark
  •   IRC Number and LCA Number
  •   Insurance cover note with money receipt
  •   Country of origin

Additional Instructions are like-

  1. Shipment by South African, Taiwanese, and Israeli flag vessels/ carriers or any vessel/ carrier calling at any port of South Africa and Israel is prohibited.
  2. Radiation certificate is required in case of food items.
  3. All charge outside Bangladesh are of account of (importer/ beneficiary).

The above information is provided along with the following documents-

  1. Proforma Invoice/ Indent stating the description of the goods including quantity, unit price, etc.
  2. Insurance cover notes with money receipt, name and address of issuing company and the policy number.
  3. Four set of IMP (Import) Form

Scrutinization of L/C Application

The BASIC Official scrutinizes the application in the following manner-

  • The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange Control & Import Trade Regulation;
  • Eligibility of the goods to import;
  • The L/C must not be opened in favor of the importer or his agent;
  • L/C must be signed by the importer agreeing all terms and conditions mentioned in the application;
  • IMP form duly filled in and signed;
  • Validity of IRC;
  • HS code of the goods;
  • Insurance cover note with date of shipment;
  • Radioactivity report in case of food items;
  • Survey reports or certificate in case of old machinery (ies).;
  • Carrying vessel is not from Israel;
  • Certificate declaring that the item is in operation not more than 5 years in case of car.

Accounting Procedure in case of L/C Opening

When the officer thinks fit the application to open a L/C, giving the following entries- creates the following charges-

Table-Showing accounting treatment at the time of L/C opening


Debit/ Credit

Charges in Taka

Customer’s A/CDebit 
L/C Margin A/C         CreditCommonly 10-30%
Commission A/C on L/C         Credit0.5%
VAT         Credit15% on commission
SWIFT Charge         Credit3500/=
Foreign Courier Charge (FCC)         Credit1000/=
Stamp         Credit150/=
Securities and Printing         Credit200/=

Source: Mirpur Branch, BASIC Bank

After that, L/C number and the above entries are given in the L/C Register. L/C opening register has the following details-

  • Date, L/C No., Name of the customer, Foreign currency amount, Exchange rate, Taka equivalent and source of import;
  • Goods, Country of origin, Advising bank, Expiry date, Tenor and Margin;
  • Charges: commission, postage, SWIFT, FCC and total;
  • Initial with date and remarks.

The contra entries stating the liability of the bank and the client are as follows-

Client’s Liability………………………….Debit.

Banker’s Liability………………………………Credit.

Then the transmission of L/C is done through SWIFT to advise the L/C to the beneficiary.

Amendment of L/C

Involved parties in a L/C, particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some obvious and genuine reason. In such a situation, the credit should be amended. Mirpur branch transmits the amendment by SWIFT/ Telex to the advising bank. In case of irrevocable letter of credit, it can not be revoked, amended or cancelled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary. On the other hand, revocable credit can be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. According to UCPDC 500 L/C must be an irrevocable one. For amended L/C’s, service charge and telex charge is debited from the party’s account accordingly.

Advising the Import L/C

Advising depicts the proof of authenticity of the credit to the seller/ beneficiary. The advising process consists of forwarding the original credit to the beneficiary. Before forwarding the advising bank has to verify the signature (s) of the L/C opening bank (BASIC Bank, Mirpur Branch). In addition, it ensures that the terms and conditions of the L/C are not inconsistent with the existing regulations. In such a case, advising bank does not undertake any liability.


Adding Confirmation

The confirming bank does adding confirmation. Confirming bank is a bank, which adds its confirmation to the credit, and it is done at the request of the issuing bank. The confirming bank may or may not be the advising bank. The advising usually does not it if there is not a prior arrangement with the issuing bank. By being involved as a confirming agent the advising bank undertakes to negotiate beneficiary’s bill without recourse to him.

Presentation of the Documents

The seller being satisfied with the terms and the conditions of the credit proceeds to dispatch the required goods to the buyer. Then he has to present the documents evidencing dispatching of goods to the negotiating bank on or before the stipulated expiry date of the credit. After receiving all the documents, the negotiating bank then checks the documents against the credit. If the documents are found in order, the bank will pay, accept or negotiate to BASIC. Then BASIC checks the documents. The usual documents are-

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

Scrutiny of Documents

First of all it must be ensured that full set of documents as mentioned in the L/C has been received. Following documents are included, namely-

  1. Letter of Credit
  2. Commercial Invoice
  3. Bill of Exchange
  4. Bill of lading
  5. Insurance cover note
  6. Certificate of origin
  7. Others.

Some Key Check Points for the aforesaid documents are as follows-

1.      Letter Of Credit

  • Whether the documents have been negotiated or presented before expiry of the credit
  • Whether the amount drawn exceeded the amount available under the credit

 2.      The Commercial Invoice

  • Is the invoice made out in the name currency as the credit indicates?
  • Is the invoice made out in the name of the buyer with the same address specified in the credit?
  • Does the invoice agree exactly with the credit as regards description of goods, value of goods, unit prices & delivery terms?
  • Any special notation, confirmation & attestation were specified in the credit and those have been complied with on the invoice and if required duly signed.
  • Does the invoice evidence the following; shipping marks/terms of delivery/weight data &import license number etc.

 3.      Bill Of Exchange

  • Is the Bill of Exchange drawn in the language of the credit?
  • Is the bill of exchange properly prepared according to the credit conditions (on a sight or time basis) and drawn on the specified bank?
  • Is it properly dated and signed?
  • Is the amount in figures corresponded exactly with the amount in word?
  • Does it contain all the prescribed notations and clauses?
  • As a rule, the amount of bill of Exchange must agree with the invoice amount (drawn to cover only 90% or 80% of the invoice value.

 4.      Bill Of Lading

First of all it has to be cleared that the Bill of Lading is showing “Shipped on Board” and it has to be properly endorsed to the bank.

  • The B/L should include the description of the merchandise according to invoice.
  • The port of shipment and destination, date of shipment and the name of the consignee are in agreement with those mentioned in the L/C.
  • The shipping company or their authorized agents properly sign the B/L.
  • The date on the B/L is not ‘stale’ which means it is not dated in unreasonably long time prior to negotiation.

5.      The Insurance Cover Note

  • Is the insurance documents specified in the credit submitted?
  • Does the insurance cover the risks mentioned in the credit in the currency of the credit and for the prescribed amount but not less than CIF value?
  • Is the insurance documents dated not later than the shipping documents?
  • Does the insurance policy/Certificate agree with other document as regards description, weight & marks of the goods, mode of transport & the route?
  • Does the insurance company attached and so far as necessary, endorsed issue all the copies?

6.      Certificate Of Origin

  • Is the certificate of origin of goods is given as stipulated?

7.      Others

  • Other documents called for in the credit if any such as packing list, weight certificate, consular invoice, inspection certificate etc. to be checked whether drawn and issued in accordance with the terms of the credit.

Lodgement of Shipping Documents

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

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

Liability reversal vouchers

Banker’s liability on L/C………..……Debit

Customer’s liability on  L/C…….………….Credit.

  • Prepare other voucher (s)

PAD A/C………………………………Debit

HO A/C…………………………..…………Credit

Interest on PAD…………………..…………Credit

Exchange Trading Earning…………..………Credit.

  • Send an IBCA to the head office.
  • Make intimation to the importer.

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

Retirement of Documents

The importer receives the intimation and gives necessary instruction to the bank for retirement of the bills or for the disposal of the shipping documents to release the imported goods from the customs authority. The importer may instruct the bank to retire the documents by debiting his account with the bank or may ask for loan. Loan is of two types, namely Loan against Imported Merchandise (LIM) and Loan against Trust Receipt (LTR). BASIC bank Mirpur branch does not allow LIM facility. But they offer LTR facility. Following steps are involvement for retirement of documents-

  • Calculation of interest.
  • Calculation of other charges.
  • Passing vouchers.
  • Entry in the register.
  • Endorsement made on the back of the bill of exchange as ‘Received Payment’ and bill of lading or other transport document is endorsed to the effect ‘Please deliver to the order of M/S——-’, under two authorized signatures of the bank’s officers (P.A. Holder).
  • Finally, documents are delivered to the Importer.

Accounting Effect

The Customer’s account and Margin on L/C is debited and PAD and Head office and other income A/C are credited. In case of LTR, the LTR A/C is debited instead of the PAD A/C.

Payment Procedure of Import Documents

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

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

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

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

d)          Transmission of Message: Message is transmitted to the correspondent bank ensuring that payment is being made.

Loan Against Trust Receipt (LTR)

LTR is post import finance, offered by BASIC Bank Mirpur Branch. From bank’s point of view, it is risky because usually no security is taken. When customer’s commitment is as good as cash, LTR is then issued. Loan is sanctioned based on trust receipt (prescribed form) only. It is allowed for retirement of shipping documents and release of goods imported through L/C. Normally it is forwarded to the industrial raw materials. Interest rate is 15%. So, in this case title and possession of goods both lying with the customer. Bank officials can exercise hypothecation of raw materials. Time period is fixed based on the nature of the goods. The goods are handed over to the importer under trust with the arrangement that sale proceeds should be deposited to liquidate the advances within the specified period.


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

Export section deals with two types of L/C that are as follows-

Back-to-Back Letter of Credit

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

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

Flow Diagram of Back-to-Back L/C:

Documents Required for Opening a Back-to-back L/C

In BASIC Bank Mirpur Branch, following papers/ documents are required for opening a back-to-back L/C-

  • Master L/C
  • Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC)
  • L/C Application and LCAF duly filled in and signed
  • Proforma Invoice or Indent
  • Insurance Cover Note with money receipt
  • IMP Form duly signed

In addition to the above documents, the followings are also required to export oriented garment industries while requesting for opening a back-to-back L/C –

  • Textile Permission
  • Valid Bonded Warehouse License
  • Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of the applicant for quota items

In case the factory premises is a rented one, Letter of Disclaimer duly executed by the owner of the house/premises to be submitted. A checklist to open back-to-back L/C is as follows –

i)                    Applicant is registered with CCI&E and has bonded warehouse license;

ii)                  The master L/C has adequate validity period and has no defective clause;

iii)                L/C value shall not exceed the admissible percentage of net FOB value of relative Master L/C;

iv)                Usage Period will be up to 180 days.

Check Points Noted in Master L/C

Following defective points are usually found in the Master L/C. So, these points are so much carefully checked by the bank officials. These are-

i)                    Issuing bank is not reputed;

ii)           Advising credit by the advising bank without authentication;

iii)         Port of destination absent;

iv)         Inspection clause;

v)                  Nomination of specific shipping/Air line or nomination of specified vessel by subsequent amendment;

vi)                Bill of lading endorses blank, endorses to 3rd bank, endorses to buyer or 3rd party;

vii)       No specific reimbursing clause;

viii)     UCP clause not mentioned;

ix)         Shipment/ presentation period is not sufficient;

x)                     Original documents to be sent to buyer or nominated agent;

xi)         FCR or HAWB consigned to applicant or buyer;

xii)       “Shipper’s load and count is not acceptable” clause;

xiii)     L/C shall expire in the country of the issuing bank;

xiv)     Negotiation is restricted.

Payment of Back-to-Back L/C

On 30/ 60/ 90/ 120/ 180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C Issuing Bank. For Garments Sector, the duration can be maximum 180 days. In case of export failure or non realization/ short realization of export proceeds, forced loan i.e. OAP has to be created in order to settle the Back to Back L/C payment.

Accounting Treatment of Back to Back L/C

At the time of arrival document, the following vouchers are passed-

Customer’s A/C…………………………………….Debit

Commission on acceptance…………………………….Credit.

At the time of payment made,

When fund is at hand, the following accounting entries are given-

Sundry Deposit Margin on acceptance…….Debit

Customer’s A/C…………………………………………….Credit.

If the party is paid in foreign currency, B.C. rate is applied in this regard. International Department takes the T.T. & O.D. rate. If the payment is made to ID in local currency in notional rate, ID follows T.T Clean Rate. When the party is be paid, OD Sight rate is followed.

When fund is not available, the following vouchers are to be passed-

OAP (Own acceptance Purchase)…………….Debit

Customer’s A/C…………………………………………….Credit.

Reporting to Bangladesh Bank

At the end of every month, the reporting to Bangladesh Bank regarding the following information is mandatory –

i)             Filling of E-2/P-2 Schedule of S-1 category that covers the entire month’s amount of import, category of goods, currency, county etc.

ii)           Filling of E-3/P-3 Schedule of for all charges, commission with T/M Form.

iii)         Disposal of IMP Form that includes:

a)      Original IMP is forwarded to Bangladesh Bank with invoice and indent;

b)      Duplicate IMP is kept with the branch along with the Bill of Entry/ Certified Invoice;

c)      Triplicate IMP is kept with the branch for office record;

d)     Qquadruplicate is kept for submission to Bangladesh Bank in case of imports where documents are retired.

Export Letter of Credit

The other type of L/C facility offered by Dilkusha Corporate Branch is Export L/C. banglade4sh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitted and wove), jute, jute-made products, frozen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign countries. Garments Sector is the largest sector that exports the lion share of the country’s export. Bangladesh exports most of its readymade garments products to USA and European Community (EC) countries. Bangladesh exports about 40 % of its readymade garments products to USA. Most of the exporters who export through Dilkusha Corporate Branch are readymade garment exporters. They open L/Cs in this branch to export their goods, which they open against the import L/Cs opened by their foreign importers.

Formalities Required For Export L/C

The export trade of the country is regulated by the Imports & Exports (Control) Act, 1950. There are a number of formalities that an exporter has to fulfill before and after shipment of goods. These formalities or procedures are enumerated as follows 1.      Export Registration Certificate (ERC): The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Imports & Exports (CCI&E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI&E and holds valid ERC. The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP (Export) Forms and others documents connected with exports.

 2.      The EXP Form: After having the registration, the exporter applies to BASIC Bank Mirpur branch with the Trade License, ERC and the Certificate from the concerned Government Organization to get the EXP Form. If the branch is satisfied, an EXP Form is issued to the exporter. An EXP Form usually contains the following particulars –

i)             Name and address of the Authorized Dealer;

ii)           Particulars of the commodity to be exported with particulars and code no;

iii)         Country of destination;

iv)         Port of destination;

v)           Quantity;

vi)         L/C value in foreign currency;

vii)       Terms of sale;

viii)     Name and address of Importer/ Consignee;

ix)         Bill of Lading/Railway Receipt/Airway Bill/Truck Receipt/Post Parcel Receipt no. and date;

x)           Port of Shipment/Post Office of Dispatch;

xi)         Land Custom Post;

xii)       Shipment Date;

xiii)     Name of the Exporter with address;

xiv)     CCI&E’s registration number and date;

xv)       Sector (public or private) under which the exporter fails.

3.      Securing the Order: Upon registration, the exporter may proceed to secure the export order. This can be done by contracting the buyers directly through correspondence.

4.      Signing of the Contract: While making a contract, the following points are to be mentioned: a)  Description of the goods; b)  Quantity of the commodity;  c)  Price of the commodity;  d)  Shipment;  e)  Insurance and marks;  f)  Inspection, and g)  Arbitration.

 5.      Procuring the Materials: After making the deal and on having the L/C opened in his favor, the next step for the exporter is set about the task of procuring or manufacturing the contracted merchandise.

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

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

The following points should be looked carefully for –

  • The terms of the L/C are in conformity with those of the contract
  • The L/C is an irrevocable one, preferably confirmed by the Advising Bank
  • The L/C allows sufficient time for shipment and a reasonable time for registration
  • If the exporter wants the L/C to be transferable, advisable, he should ensure those stipulations are specially mentioned in the L/C.

At last, the exporter submits all these documents along with a Letter of Indemnity to the branch for negotiation. An officer scrutinizes all the documents. If the documents are clean one, the branch purchases the documents on the basis of banker-customer relationship. This is known as Foreign Documentary Bill Purchase (FDBP).

Procedure For FDBP

After purchasing the documents, BASIC Bank Mirpur Branch gives the following entries –

Before realization of proceeds

FDBP A/C —————————————-Debit

Customer A/C  —————————————–Credit.

Adjustment after realization of proceeds

Head Office A/C———————————-Debit

FDBP A/C————————————————Credit.

A FDBP Register is maintained for recording all the particulars. The salient contents of a FDBP register are as follows-

i)             FDBP Ref. no.

ii)           Date

iii)         Drawer/ Beneficiary

iv)         Drawee/ Applicant

v)           Foreign Currency

vi)         Rate

vii)       Local Currency

viii)     Margin (% of amount)

ix)         Modes of Transport

x)           Merchandise

xi)         Documents

xii)       L/C no. and name of opening bank

xiii)     Name of collecting Bank

xiv)     Initial, due date, date realized, bank charges recovered with remarks.

 Foreign Documentary Bills For Collection (FDBC)

BASIC bank Mirpur branch forwards the documents for collection due to the following reasons-

  1. If the documents have discrepancies.
  2. b.                  If the exporter is a new client.
  3. The banker is in doubt.

FDBC signifies that the exporter will receive payment only when the issuing bank gives payment. The exporter submits duplicate EXP Form and Commercial Invoice. Subsequently, the value of the bill is calculated and the following accounting entries are given-

Head Office A/C———————————-Debit @ T.T Clean

Client’s A/C———————————————-Credit @ OD sight

Postage A/C———————————————-Credit

Income A/C profit on Exchange———————–Credit.

After passing the above vouchers, an Inter Branch Exchange Trading Debit Advice is sent for debiting the NOSTRO account. EBL has 17 NOSTRO accounts with its reimbursing bank An FDBC Register is maintained, where first entry is given when the documents are forwarded to the issuing bank for collection and the second one is done after realization of the proceeds.

Inland Letter of Credit (ILC)

ILC means L/C within the same country. This type of L/Cs are opened when seller does not believe the buyer though they are in the same country and also in the cases where the sales contract is of a big amount. BASIC Bank Mirpur branch has couple of ILC.

Settlement of Local Bill

The settlement of local bills is done in the following ways –

  • The customer submits the L/C to the branch along with the documents to negotiate;
  • The branch officials scrutinizes the documents to ensure the conformity with the terms and conditions;
  • The documents are then forwarded to the L/C Opening Bank;
  • The L/C Issuing Bank gives the acceptance and forwards an acceptance letter;
  • Payment is given to the customer on either by collection basis or by purchasing the document.

Accounting entries are made for purchasing of local bill–

Local Bill Purchase——————————-Debit

Party A/C————————————————-Credit


Interest A/C———————————————–Credit.

A LBPD Register is maintained to record the acceptance of the issuing bank. Until the acceptance is obtained, the record is kept in a collection register.

Modes of Payment For Export Bills Under L/C

Broadly payment methods under a L/C are as follows-

Sight Payment Credit: In a Sight Payment Credit, the bank pays the stipulated sum immediately against the exporter’s presentation of the documents.

Deferred Payment Credit: In deferred payment, the bank agrees to pay on a specified future date or event, after presentation of the export documents. No bill of exchange is involved. In BASIC, payment is given to the party at the rate of D.A 60-90-120-180 as the case may be. But the Head office is paid at T.T clean rate. The difference between the two rates us the exchange trading for the branch.

Another two types come under the same heads. These are as follows-

  1. Negotiation Credit: In Negotiation credit, the exporter has to present a bill of exchange payable to himself in addition to other documents, that the bank negotiates.
  2. Acceptance Credit: In acceptance credit, the exporter presents a bill of exchange payable to him and drawn at the agreed tenor (that is, on a specified future date or event) on the bank that is to accept it. The bank signs its acceptance on the bill and returns it to the exporter. The exporter can then represent it for payment on maturity. Alternatively he can discount it in order to obtain immediate payment.

Advising L/C

When export L/C is transmitted to the bank for advising, the bank sends an Advising Letter to the beneficiary depicting that L/C has been issued.

Test Key Arrangement

Test key arrangement is a secret code maintained by the banks for the authentication for their telex messages. It is a systematic procedure by which a test number is given and the person to whom this number is given can easily authenticate the same test number by maintaining that same procedure. BASIC has test key arrangements with so many banks for the authentication of L/C messages and for transfer of funds.

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