Overview of Foreign Exchange
Foreign Exchange Regulation Act, 1974
Foreign Exchange Regulation Act, 1947 (Act No. VH of 1947) enacted on 11th March, 1947 in the then British India provides the legal basis for regulating certain payments, dealings in foreign exchange and securities and the import and export of currency and bullion. This Act was first adapted in Pakistan and then, in Bangladesh. The Act is reproduced. Bangladesh Bank is responsible for administration of regulations under the Act. Bangladesh Bank’s offices and their jurisdictions provide a list. Basic regulations under the PER Act are issued by the Government as well as by the Bangladesh Bank in the form of Notifications, which are published in the Bangladesh Gazette. Notifications issued by the Bangladesh Government and the erstwhile Government of Pakistan and the Bangladesh Bank and the erstwhile State Bank of Pakistan is reproduced. Directions having general application are issued by the Bangladesh Bank in the form of notifications, foreign exchange circulars and circular letters. The major objectives of the act are to conserve the limited foreign exchange resources and to ensure that the available foreign exchange is utilized only for priority requirements the economic and financial interests of Bangladesh and the maintenance of the proper accounting of foreign exchange receipt and payments. Bangladesh Bank is responsible for administration of regulations under the Act. Bangladesh Bank reviews the exchange control measures from time to time and revises the instructions on policy and measures, whenever necessary through different Foreign Exchange (FE) circulars.
Bangladesh Bank (BB) means the Bangladesh Bank established under the Bangladesh Bank Order, 1972 (President’s Order No. 127 of 1972).
Taka means the Bangladesh Taka unless otherwise specified.
Dollar:Unless otherwise in ipublication shall mean the US dollar.
Wherever used in this publication, the term Authorized Dealer or AD would mean a bank Authorized -by Bangladesh Bank to deal in foreign exchange under the FER Act, 19
Foreign Exchange Regulation Act, 1994:
This Act regulates the exchange of foreign currencies, remittances and opening of foreign currency account under various classifications. According to this law, FC Accounts can be opened without initial deposits, and bears no interest and both the account holder and the nominee can operate the account. The entire remittance from adored is free from income tax. It also states the documents required for the opening of such account.
Some Definition of Foreign Exchange:
Foreign exchange means foreign currency and includes all deposits, credits and balance of payable in foreign currency as well as Draft, Traveler’s cheques, Letter of credit, Bills of Exchange drawn in local currency but payable in foreign currency.
— Foreign Exchange Regulation Act, 47, Sec 2 (a)
Foreign exchange means foreign currency and includes any instrument drawn, accepted, made or issued under clause 13 of section 16 of the Bangladesh bank Order, 1972 all deposits and credits and balances, Travelers cheques, Letter of credit and bills of exchange, expressed or drawn in Bangladesh currency but payable in any foreign currency.
— Bangladesh bank order 1972.
The mechanism through which payments are effected between two countries having different currency systems is termed as foreign exchange. It is related with the exchange method & mechanism through which the payments in connection with international trade are transacted.
—A Banking Expert.
System or process of converting one national currency into another and of transferring money from one country into another. —Dr. Paul Einzig.
Foreign Exchange Department:
Foreign exchange department deals with foreign currency and the transaction of it. The major jobs of this department are listed below:
- Letter of Credit (for Export and Import)
- Dollar/Traveler’s Cheque (TC) Endorsement
- Foreign Remittance
- Foreign Currency Account
Types of Letter of Credit:
A revocable credit is a credit which can be amended or canceled by the issuing bank at any time without prior notice to the seller.
An irrevocable credit constitutes a definite undertaking of the issuing bank (since it cannot be canceled without the agreement of all parties thereto). Provided that the stipulated documents are presented and the terms and conditions are satisfied by the seller. An irrevocable credit can be either confirmed or unconfirmed depending on the desire of the desire of the seller. This sort of credit is always preferred to revocable letter or credit.
The revolving credit is one, which provides for resorting the credit to the original amount after it has been utilized. How much time it will be taking place must be specifically mentioned in the credit. The revolving credit may be either cumulative or non-cumulative.
A transferable credit is one that can be transferred by the original beneficiary in full or in part to one or more subsequent beneficiaries. Such credit can be transferred once only. Fractions of a transferable credit can be transferred separately, provided partial shipments are not prohibited.
BACK TO BACK CREDIT:
The back to back credit is a new credit opened on the basis of an original credit in favor or another beneficiary. Under back to back concept, the seller as the beneficiary of the first credit offers it as security to the advising bank for the issuance of the second credit. The beneficiary of the back to back to back credit may be located inside or the out side the original beneficiary’s country.
The anticipatory credits make provision for pre-shipment payment to the beneficiary in anticipation of his effecting the shipment as per L/C conditions.
When the clause of the credit authorizing the negotiating bank to provide pre-shipment advance to the beneficiary is printed typed in red, the credit is called “Red Clause letter of credit”
Parties to the Letter of Credit:
|The Applicant||Importer -Applies for L/C|
|It is the Bank which opens issues a L/C on behalf of the importer|
|Confirming Bank||It is the Bank, which adds its confirmation to the credit and it, is done at the request of issuing Bank. Confirming Bank may or may not be advising bank|
|Advising or Notifying Bank||It is the bank through which the L/C is advice to the Notifying Bank exporter. This Bank is actually situated in exporter country. It may also assume the role of confirming and /or negotiating bank depending upon the condition of the L/C|
|It is the Bank which negotiated the bill and pays the amount to the beneficiary. The advising Bank and the negotiating bank may or may not be the same|
|Sometimes it can also be confirming Bank accepting Bank lit is the Bank on which the bill will be drawn ( as per condition of the credit) usually it is the issuing Bank|
|It is the bank ,which would reimburse the negotiating Bank after getting payment|
Foreign Exchange Operation (Theoretical Aspects):
In EXIM Bank limited foreign exchange is divided in to two parts according to the major activities:
- Import oriented foreign exchange activities.
- Export oriented foreign exchange activities
There is also foreign Remittance operation that carryout by the foreign exchange department. Import Section:
The function of this section is mainly to deal with various components such as:
Letter of Credit (L/C)
Payment against Document (PAD)
Payment against Trust Receipt (PATR)
Loan against Imported Merchandise (LIM)
There are a number of formalities, which on Importer has to fulfill before import goods. These formalities are explained bellow —
Import Registration Certificate (IRC):
The first thing one need to carry on a business of import is called Import Registration Certificate. But registration is not required for import goods, which do not involved remittance of foreign exchange like medicine; reading materials etc. can be imported without registration by the users within monetary limit. Documents to be required for Import Registration Certificate are as follows —
- Income Registration Certificate
- Nationality Certificate
- Certificate from Chambers of Commerce and Industry Registered Trade
- Bank Solvency Certificate
- Copy of Trade License
- Requisite fees
On receiving application, the respective CCI&E officer will scrutinize the documents and conduct physical verification and issue demand note to the prospective importers to furnish the following papers through their nominated Bank-
|² Partnership deed in case of partnership firms|
² Certificate of Registration, Memorandum and Articles of Association in case of Limited Company.
After scrutinizing and verifying, the nominated Bank will forward the same to the respective CCI&E office with forwarding schedule in duplicate through Banks representative. CCI&E then issue Import Registration Certificate to the Applicant.
Function of Import Section:
The form IMP contains the followings—
- Name and address of the Authorized dealers.
- Amount of remittance to be permitted (i.e./C amount)
- LCA form no. Date and value in Taka.
- Description of goods.
- Invoice value in foreign currency, (i.e./C amount)
- Country of origin.
- Port of shipment.
- Name of steamer / Airline
- Port of importation.
- Indenter’s name and address.
- Indenter’s registration number with CCI & E and Bangladesh Bank.
- Full name and address of the applicant.
- Registration number of the applicant with CCI & E.
- Type of LCAF
The procedures, which follows at the time of Import areas, follow —
- The buyer and the seller conclude a sale contract provided for payment by documentary credit.
- The buyer instructs his Bank (the issuing Bank) to issue a credit in favor of the seller / Exporter / Beneficiary.
- The Issuing Bank then send message to another Bank (Advising Bank /Confirming Bank) usually situated in the country of seller, advice or confirms the Credit Issue.
- The Advising / confirming Bank then informs the seller through his Bank that the Credit has been issued.
- As soon as the seller receives the credit, if the credits satisfy him the he can reply that, he can meet its terms and conditions, he is in position to load the goods and dispatch them.
- The seller then sends the documents evidencing the shipment to the „! Bank where the Credit is available (nominated Bank). This can be the ^ issuing Bank or Confirming Bank; Bank named in the Credit as the paying, accepting and
- Negotiating Bank.
- The Bank then checks the documents against the credit. If the documents meet the requirements of the credit, the Bank then pay, accept or negotiate according to the terms of credit. In the case of credit available by negotiation, Issuing Bank will negotiate with recourse. The Bank, if other then the issuing bank, sends the documents to the issuing Bank.
- The issuing Bank checks the document and if they found that the document has meet the credit requirements, they realize to the buyer upon payment of the amount due or other terms agreed between him and the issuing Bank.
- The buyer sends transport documents to the carrier who will then proceed to deliver the goods.
An importer is required to have the followings to import through the bank:
A bank account in the bank.
Import Registration certificate.
Taxpaying identification number.
Performa invoice indent
LCA (Letter of credit application) form duly attested.
One set of IMP form.
Insurance cover note with money receipts.
Typical Letter of Credit Transaction:
In case of an L/C of a small amount only the prescribed application form i.e. the LCA (Letter of credit application) form is enough to open an L/C. but when the L/C amount is reasonably high, and then the importer is asked to submit a proposal to the bank authority to have a limit of L/C amount. This proposal should be approved in the meeting of the executive committee of the bank. The sufficient features of a proposal are —
Full particulars of bank account.
Nature of business.
Required amount of limit.
Payment terms and conditions.
Goods to be imported.
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 limits and returns back to the branch. Thus the importer is entitled for the limit.
Step-2: L/C Application:
BDI provides a printed form for opening of L/C to the importer. This form is known as credit application form. A special adhesive stamp is affixed on the form. While opening, the stamp is cancelled. Usually the importer expresses his desire to open the L/C quoting the amount of margin percentage. The importer gives the following information –
Letter of Credit Authorized (LCA) Form:
The LCA form contains the followings —
- Name and the address of the importer.
- IRC No. and year of renewal.
- Amount of L/C applied for.
- Description of items/to is imported.
- ITC number (s)/HS code.
- Stamp and signature of the importer with seal.
Step-3: Securitization of L/C Application:
The bank officials scrutinizes the application in the following manners-
- The terms and condition of the L/C must be complied with UCPDC 500 and Exchange control & import trade regulation.
- Eligibility of goods to be imported.
- The L/C must not be opened in favoring of the importer.
- Radioactivity report in case of food item.
- Survey reports or certificate in case of machinery.
- Carrying vessel is not of Israel or Serbia- Montenegro.
- Certificate declaring that the item is in operation not more than 5 years in case of car.
On scrutiny, if the application is found fit then the L/C is opened and particulars of the same are recorded in the L/C register. Then the transmission of L/C is done through tested Telex or Fax to advise the L/C to beneficiary. If the amount exceeds US$ 10,000 the bank takes the credit report of the beneficiary (CIB report) to ensure the worthiness of the supplying goods.
Amendment of L/C:
Parties involved in 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 reasons. In such a situation, the Credit should be amended. The bank transmits the amendment by tested telex to the advising bank. In case of revocable credit, it can be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary. But incase of irrevocable letter of credit, it neither be amended nor cancelled without the agreement of issuing bank, the confirming bank (if any) and the beneficiary. If the L/C is amended, service charge and telex charge are debited from the party account accordingly.
Add the confirming bank gives confirmation. An add confirmation Letter of Credit contains the followings –
Step-4: Presentation of the Documents:
The seller being satisfied with the terms and conditions of the credit proceeds to dispatch the required goods to the buyer and after that he has to present the documents evidencing dispatching of goods to the negotiating bank on or before stipulated expiry date of the credit. After receiving all 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 bank. The usual documents are —
ü Bill of lading
ü Shipping advice
ü Packing list
ü Certificate of origin
|ü Non negotiable copy of bill of lading|
ü Bill of exchange
ü Pre-shipment inspection report.
ü Shipment certificate.
Step-5: Examination Documents:
Export Import Bank of Bangladesh Limited (EXIM) officials check weather these documents has any discrepancy or not. Here discrepancy means the dissimilarity of any documents with the terms and conditions of L/C.
Check lists of find our discrepancy:
Whether the presentation date is latter than the date of L/C expire date
- Commercial invoice-How many
- Packing list-How many
- Delivery Chelan date is greater than the last shipment date
- Export L/C is written in all the document
- Amount is correct
- Whether the shipment is partial check in the L/C
- Bill of Exchange is dully presented
- In delivery Challan there is counter signature by the proprietor of Importer
- If the L/C is for cotton Yarn, than check whether they have submitted mushok-11 BTMA certificate of production and country of origin etc
Step-6: Retirement of Shipping Documents:
On security if it is found that, the documents drawn are in order EXIM, lodges the documents in PAD and few vouchers are passed.
Retirement or Import Bills:
¤ Importer will deposit the claim amount
¤ Banker will prepare and pass Retirement Vouchers
¤ Certifying Invoices
¤ Passing of Vouchers
¤ Entry in the Register
¤ Endorsement in the B/E and transport document i.e. B/L AWB, TR etc.
At the end of the total procedure, taking the retirement of Import Bills/Clearing Certificate from the Bank, the Importer will clear the goods from the port through the Clearing Agent and Forwarding Agent.
On the other hand, completing the above all steps in the issuing Bank will prepare “Foreign Exchange Transaction Schedule” and send one copy to international division of Head Office and another one copy to recommendation.
Payment Procedure of the Import Documents:
This is the most sensitive task of the import department. The officials have to be very much careful while making payment. The task constitute the followings-
Date of payment- Usually payment is made within seven days after the documents have been received. If the payment is become differed, the negotiating bank may claim interest for making delay.
Preparing sale memo- a sale memo is made at B.C rate to the customer. As the TT & 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.
Requisition for foreign currency- for arranging necessary fund for payment a requisition is sent to the ID.
Transmission of telex- a telex is transmitted to the correspondent bank ensuring the payment is being made.
Loan against Imported Merchandise (LIM):
If the importer does not come to negotiate the shipping documents from the issuing bank then it creates LIM through the bank clears the goods from the port and holds the goods in its warehouse beside the above as soon as the imported goods come to the port the party may fall into financial crisis and request the bank to clear the goods from the port making payment to the exporter, in this case the party later may take the goods partly or fully from the banks by making required payment (if he/she takes the goods time to time payment will be adjusted simultaneously).
By the term Export, we mean that carrying of anything from one country to another. On the other hand Banker’s define Export as sending of visible things outside the country for dale. Export Trade plays a vital role in the development process of an Economy. With the Export earning, we meet our Import Bills.
The export trade of the country is regulated by the Import and Export (Control) Act, 1950. There are some formalities, which an exporter has to fulfill before and after shipment of goods. No exporter is allowed to export any commodity from Bangladesh unless he/she is registered with Chief Controller of Export & Import (CCI&E) and holds valid Export Registration Certificate (ERC). The ERC is required to be renewed every year and this task is generally done by the bank. As per instruction by Bangladesh Bank, the bank has to report respective department of Bangladesh bank by mentioning latest payment.
Export Registration Certificate (ERC):
Similar to any other business, exporters are required to obtain ERC from the offices of the Chief Controller of Import and Export (CCI&E). No person is allowed to export any goods from Bangladesh without obtaining such ERC. For Registration, prospective Exporters required to submit the following documents —
|► Application Form|
► Fees paid treasury Chillan
► Asset certificate
► Income Tax Clearance
► Valid Trade License
► Nationality Certificate
► Bank’s Solvency Certificate
|► Registered Partnership Deed|
► Memorandum & Articles of Association and Incorporation Certificate
► Copy of rent receipt of the business firm
► Copy of rent receipt of the business premises.
On receipt of the above documents to the office of CCI&E, the applicant is required to deposit required registration fee to the treasury office and receipted Challan should be sent to CCI&E office for enabling there to issue ERC. Every year registered exporters are to make payment of prescribed fee towards renewal of ERC.
Function of Export Section:
All Export of which the requirements of declaration vide para-1 of chapter XXI of Exchange Control Manual of Bangladesh Bank applies must be declared on the EXP forms by the customer, now issued by the Authorized Dealers. Motijheel Branch of EXIM Bank is an Authorized Dealer, which supply EXP form to the exporters.
Disposal of Export Form:
|Original||From Custom Authority to Bangladesh Bank after shipment goods.|
|Duplicate||From Negotiating Bank to Bangladesh Bank after Negotiation.|
|Triplicate||From Negotiating Bank to Bangladesh Bank after realization of the proceeds of the Export Bill.|
|Quadruplicate||Retained by the Negotiating Bank as Office Copy.|
Followings Are Need to Be Examined:
Each and every clause in the L/C must be complied with meticulously and ensure the following –
Documents are not stale
Documents are negotiated within the L/C validity. If credit expires on a recognized bank holiday its life is automatically valid onto the next working day. This is to be stipulated on the documentary schedule.
Documents value does not exceed the L/C value.
Draft is to be examined as under
Draft must be dated
It must be made out in the name of the beneficiary bank to be endorsed to the order of the bank
Bank must verify the signature of the drawer
Amount must be tallied with the invoice amount
It must be marked as drawn under L/C No, date, issued by, bank.
It is to be scrutinized to ensure the followings –
Invoice is addressed to the importer
Full description of merchandise as per L/C
Price, quantity, quality must be as per L/C terms
Must be language in the language of L/C
No other charges are permissible in the invoice beyond the stipulation on the L/C
The amount of draft and invoice must be same and within the L/C value
Required number of invoice must be submitted
Shipping mark and number of packing list must be identical
Invoice value must not be less than the value of declared in EXP form.
Must be correct on the basis of price, quantity as appear L/C
A person eager to export should make application to obtain ERC from CCI&E office. Then the person should take step for export purpose into the bank for obtaining EXP form. He must submit following documents:
¤ Trade license
¤ Export Registration Certificate (ERC)
¤ Certificate from concerned Government Organization
After satisfaction on the documents the banker will issue EXP form to the exporter. Now exporter will be getting shipping and other documents from the shipment procedure. Exporter should submit all these documents along with letter of indemnity to his bank for negotiation.
Discrepancy and Industry:
After the shipment of goods, the exporter submits export documents to authorized dealer for negotiation of the same. Here authorized dealer is exporter’s bank. The banker is to ascertain that documents are strictly as per the terms of L/C before negotiation of the export bill; the banker should scrutinize and examine each and every document with great care & must be go through the original L/C in the time of scrutiny. Any kind of lacking can be classified as major or minor. There may be some discrepancies which are removable. If the discrepancies are minor, the export bill against submission of indemnity. Documents with discrepancy should be negotiated. With the permission of the exporter, such documents are to be sent on collection.
At the time of negotiation the checklist or required documents are as follows –
- Commercial Invoice 8 copies (4 original)
- Custom Invoice of Importer’s Country
- Packing List 8 copies (4 original)
- Original Certificate of Origin
- Inspection Certificate by the Agent of Importer
- Acknowledgement Letter
- Frightful Letter etc.
All the documents are found strictly as per terms and conditions of L/C i.e. if the documents are free from discrepancies or if the discrepancies are covered by Indemnity of the party, bank has to negotiate the Export Bill for negotiation of cash export bills, the O.D buying rate prevailing on the date of negotiation is applied conversion of the foreign currency into Bangladesh currency. All transactions are reported through F.E.T sent daily to the international division Head Office, Dhaka. On receipt of the F.E.T the head office credits the FBNA Account by debit the balance with foreign Banks abroad Account after the process of the bill is realized. After negotiation of the export bills, the documents are to be sent abroad (normally to the L/C Issuing Bank) as per the instructions of L/C & claim reimbursement of the proceeds from the bank as mentioned in the L/C.
Risks in Negotiation:
If the Bank failed to indemnify any discrepancy in documents prepared by the Exporter and if bank paid the demanded amount, bank will face huge loss. At that time, the Negotiating Bank personally try to contact with party and if they agree to deliver the required documents then the bank may get rid out from huge loss otherwise not. So, Banker-Customer relationship is very important in this regard. Bank need to be very careful at the time of negotiation.
Banks Profit through Negotiation:
A question can arise that if the risks involved there, why banks will go for negotiation. Because –
At first, through negotiation bank will earn a certain commission from the party without involving any fund.
Bank will earn US$ from reimbursing bank from the foreign and bank is also earning commission from that.
If the payment make overdue, on that time branch of the concerned bank will earn interest from that amount.
Back To Back L/C (BTB L/C):
- Back To Back L/C Opens:
It is a secondary letter of credit opened by the advising bank in favor of a domestic/foreign supplier on behalf of the beneficiary original foreign L/C. As the original letter of credit of bank by import letter, it is called Back-to-Back L/C. The second L/C is opened on the strength of the original L/C for a smaller amount.
- Back To Back L/C (Foreign):
When the B-To-B L/C is opened in a foreign country supplier it is called B-To-B L/C (Foreign). It is generally payable within 120 days at site.
- Back L/C (Local):
When the Back-to-Back L/C is opened for local purchase of materials, it is called Back-to-Back L/C (Local). It is generally payable within 90 days at site.
- Back To Back L/C Export Development Fund (EDF):
EOF provided by the ADB to Bangladesh Bank for export promotion of Third-World-Country like Bangladesh. When the bank is not in a position to support the amount of B-to-B L/C then they apply for loans to the Bangladesh Bank for B-To-B (EOF).
Procedures for Back To Back L/C:
- Exporter should make application for Back to Back LAC
- Export L/C or Master L/C under is lien
- Opening of Back to Back L/C
- Terms and conditions for Back to Back L/C
- That the customer has credit line facility
- That L/C is issued as per UCPDC 500
- That on the Export L/C a negotiating clause is present
- That there is no provision for blank endorsement of B/L
- That payment clause is there on the L/C issuing bank ensuring payment
Consideration for Back To Back L/C:
Whether client can manufacture within time period
The unit price of the finished pro-forma invoice should be considering while allowing margin
Consider the expiry date and shipment date
Onsite inspection whether manufacturing is carried out
Payment under Back To Back L/C:
Deferred payment is made in case of BTB L/C as 60, 90,120, 180 date of maturity period. Payments will be given after realizing export proceeds from the L/C issuing bank from the abroad.
4.21Reporting of Bangladesh Bank:
At the end of the every month reporting of Bangladesh Bank is mandatory regarding the whole month export operation, the procedures in this respect is as follows —
◙ To fill-up the E-2/P-2 schedule of S-l category. The whole month import amount, quantity, goods category, country, currency, etc. all are mentioned. Respective IMP forms are attached with the schedule to fill E-3/P-3 for all invisible payment.
◙ Original IMP is forwarded to Bangladesh Bank with mentioning invoice value
◙ Duplicate IMP is skipped with the bank along with the bill of entry.
Documentation for Export Purpose:
Following major documents are required for export purpose —
|¤ Commercial invoice|
¤ Bill of lading
¤ EXP. Form
¤ Bill of Exchange
¤ L/C copy
¤ Packing List
|¤ Certificate of Origin|
¤ Quality Control Certificate
¤ Weight List
¤ Inspection Certificate
¤ Other (if required)
Procedure for collection of Export Bill:
There are two types of procedures regarding collection of Export Bill —
► Foreign Documentary Bill for Collection (FDBC)
► Foreign Documentary Bill for Purchase (FDBP)
Foreign Documentary Bill for Collection (FDBC):
Exporter can collect the bill through negotiating bank on the basis of collection. Exporter in this case, will submit all the documents to the negotiating bank for collection of bill from importer. The exporter will get money only when the issuing bank gives payment. In this connection bank will scrutinize all the documents as per terms and conditions mentioned in L/C.
Foreign Documentary Bill for Purchase (FDBP):
When exporter sale all the export documents to the negotiating bank is known as Foreign Documentary Bill Purchase (FDBP). In this case, the exporter will submit all the documents to the bank. The bank gives 60-80% amount to the exporter against total L/C value.
Local Document Bill for Purchase (LDBP):
Incoming of L/C customer come with the L/C to negotiate
Documents given with L/C.
Scrutinizing documents as per L/C terms and conditions.
Forward the documents to L/C opening bank.
L/C issuing bank give acceptance and forward acceptance letter.
Payment given to the party by collection basis or by purchasing documents.
Secure Over-Draft (SOD) Export:
Secured Overdraft is one kind of credit facility enjoying by the exporter from the export section. It is generally given to meet the back-to-back L/C claim. Sometimes it is given to the exporter by force for meet the back-to-back L/C claim due to delay of Master L/C payment.
Packing Credit (PC):
It is one kind of credit sanctioned by the export department to meet the exported goods shipment timely. Packing credit is granted to pay salary, wage& other related factory expenses of processing the imported products. The bank will give the facility after deduction of back-to-back.
Fund transfer from one country to another country goes through a process which is known as remitting process. Suppose a local bank has 200 domestic branches and has the corresponding relationship with a foreign bank say-“X”, maintaining “Nostro Account” in US$ with the bank. Bangladeshi expatriates are sending foreign remittance to their local beneficiary, through that account. Now, when the Bangladeshi expatriates through other banks of different countries remit the fund to their “Nostro Account” with “X”, then the local bank’s Head office international division will receive telex message and the remittance section will record the advice and generate the advice letter to the respective branch of the bank. The branch will first decode the test, verify signature and check the account number and name of the beneficiary. After full satisfaction, the branch transfers the amount to the account of the beneficiary and intimates the beneficiary accordingly. But sometimes complexity arises, if the respective local bank has no branch where the beneficiary maintains his account. Then the local bank has to take help of a third bank who has branch there.
Export Import Bank of Bangladesh Limited (EXIM) Bank is the Authorized Dealer (AD) to deal in foreign exchange business, as an authorized dealer, bank must provide some services to the clients regarding foreign exchange and this department provides the service of remitting foreign currencies from one country to another country. In the process of providing this remittance service it sells and buys foreign currency, the conversation of one currency into another takes place at an agreed rate of exchange , which than Banker quote one for buying and another for selling.
Foreign Currency Remitting Procedures:
Inward remittance covers purchase of foreign currency in the form of foreign Telegraphic Transfer (T.T), Demand Draft (DD) and Bills & Travelers Cheque, Export Bill etc. sent from abroad favoring a beneficiary in Bangladesh, purchase of foreign exchange is to be reported to Exchange Control Department of Bangladesh Bank on from – letter of Credit (L/C). Basically, these are the formal channels of receiving inward remittance.
Outward remittance covers sales of foreign Currency by Authorized Dealer (AD) or Formal
Channel through issuing foreign Telegraphic
Transfer (T.T), Demand Drafts (D.D), Traveler’s Cheque etc. as well as sell of foreign exchange under L/C and against Import Bills retired. The Authorized Dealers have to demonstrate utmost caution to ensure that foreign currencies remitted or released by them are used only for the purposes for which they are released. Most outward remittance is approved by the authorized dealer on behalf of Bangladesh Bank.
Outward Remittance may be made for following purposes-
Balance Amount of Foreign Currency Account
Profit of Foreign Companied
Letter of Credit (L/C) payment
Fair, Exhibition for export promotion.
Remittance Transfer Channels:
Foreign Remittance can be transferred in two ways –
Fund transfer from one country to another country through official channels, i.e. banking channel, post office and other private service channels, such as – Western Union Money Transfer, Neon Money Order, Money Exchanger etc.
The Legitimate purposes of moving money abroad through formal channel are –
To meet Trading/Personal Obligations
To safeguard assets against theft or seizure by repressive regimes
Fund transfer from one country to another country through hand by hand or over telephone in an unofficial channel like – “Hundi”. Experts state that remittance collected
by informal “Hundi” rings are used to finance illegal trade and transaction. Terrorist financing is also made by this sort of channel
Criminals use informal channel for moving money abroad because of –
¤ Dealing in arms & ammunitions
¤ Drug trafficking
¤ Financing terrorists’ activities
¤ Evasion of exchange regulations/control
¤ Evasion of taxation
¤ Disguise or remove proceeds of threat/fraud/bribe
¤ Making blackmail payments
¤ Paying random for Kidnappers
Income of the Bank in Foreign Exchange Sector:
Commission on opening a BTB L/C which is determined on the basis of “Bills for Collection” selling rate.
0.45% commission on the deferred L/C for 120 days & .30% commission on the deferred L/C for 90 days if the applicant bank accepts the bill for payment (ABP) in respect of its applicant.
Tk.500 for shipping guarantee to the customs department of the port if the applicant wants to discharge the imported products before receiving the documents related to export. The bank acts as a guarantor taking all responsibilities related to payments.
7-10% interest rate on packing credit.
Books and Articles:
1) Madura Jeff “Financial Markets and Institutions”
2) Book of Money and baking
3) Kotler Philip and Keller Kevin lane, Marketing Management, 12th Ed., 2005, prentice-hall of India private limited.
4) Malhotra Naresh K., Marketing Research–and applied orientation, 4th Edition, 2007-2008, prentice-hall of India private limited.
5) Annual Report of EXIM Bank Limited 2008 and 2009.
6) Quarterly affairs, Report.
7) Different Types of Form of the EXIM Bank Ltd.