PRESENTED BY: V.K.

CHHATWAL CHIEF MANAGER PUNJAB NATIONAL BANK DELHI

To understand the meaning of foreign exchange The relation between foreign trade and foreign exchange To understand the role of commercial banks as authorised dealers

Export trade is regulated by: Directorate General of Foreign Trade Foreign Trade Policy Foreign Exchange Management Act FEDAI Rules UCPDC - 600

Status Category Export House Star Export House Trading House Star Trading House Premier Trading House

Export Performance (FOB value-Rs.Cr.) 20 100 500 2500 7500

Manner of receipt and payment Realization and repatriation of export proceeds Foreign currency accounts Advance payment against exports Consignment exports Short shipment and shutout shipment Export claims Extension of time, write off and refund of export proceeds
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Specific Identification number Custom clearance forms: GR SDF PP SOFTEX Submission of Shipping documents by exporters Return of documents to exporters

Import trade is regulated by: Directorate General of Foreign Trade Foreign Trade Policy Foreign Exchange Management Act FEDAI Rules UCPDC - 600

Import License Time limit for settlement of import payment Import of foreign exchange into India Import of Indian currency Advance remittances for import of goods and services Evidence of import Merchanting trade

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Know your customer (KYC) Form A-1 Form A-2

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BoP is the systematic and summery record of a countrys economic and financial transactions with the rest of the world over a period of time. Economic transactions Residents and non-residents Flow statement Periodicity

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Current Account Capital Account Official Reserve Account

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In the economic sense, BoP is balanced only when each segment balances by itself. Each of these balance, when they are non-zero, indicates disequilibrium in the balance of payments. Autonomous transactions Accommodating transactions

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Imbalance in Current Account Imbalance in Capital account Imbalance in overall BoP

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Devaluation Deflation Exchange control Import restrictions Export promotions

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Convertibility of a currency refers to its convertibility into a foreign currency as desired by its holder. A currency is converted to effect remittances which are broadly classified into two categories: Current account convertibility Capital account convertibility

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BENEFITS

PITFALLS

It makes available a large capital stock to supplement domestic resources. It allows residents to hold an internationally diversified portfolio. For global investors, CAC helps them to seek higher returns by sharing risks. Fuller convertibility may lead to speculative short term transactions Conversion of substantial part of local assets in foreign currency poses the threat of outwards flows in higher interest rates which could destabilize economy

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Shri S.S. Tarapore committee on Fuller Capital Account Convertibility recommended:

Liberalisation on remittances Freeing of capital markets for Non Residents Abolition of tax benefits for NRIs on deposits Review of double taxation treaties Increasing Limits to banks for borrowings from external markets Increasing external commercial borrowings limits

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Rupee is partially convertible in Capital Accounts. However the limits for various personal remittances as well for investments purpose has been increased over a period of time Dual listings of shares is not allowed.

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Release of Foreign Exchange per Financial Year

PURPOSE
Private Visit Employment Abroad Immigration

AMOUNT OF FOREIGN EXCHAGE

$10000 equivalent $100000 equivalent $100000 equivalent

Studies Business Trip

$100000 equivalent or estimate from Instution Abroad whichever is higher $25000 equivalent

Medical

$100000 equivalent or estimate from Doctor Abroad whichever is higher

Cultral Tour

As per sanction

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Limit - $75000 equivalent per F.Y. w.e.f 16th Aug 2013. Facility is available to all individuals including minors Scheme also include remittances towards gifts and donation by a resident individual Resident Individual is permitted to make a rupee gift/loan to NRI Resident Individuals are free to acquire immovable property or shares or any other asset outside India Bank should not extend any kind of Credit Limits to resident individual to facilitate remittances under the scheme
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RISK

Business Risk

Financial Risk

Strategic Risk

Competition Risk

Technological Risk

Liquidity Risk

Credit Risk

Market Risk

Settlement Risk

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TRANSACTION OR CONVERSION EXPOSURE

CONVERSION OF FOREIGN CURRENCY RECEIVABLES/PAYABLES INTO DOMESTIC CURRENCY

FOREIGN EXCHANGE EXPOSURE

TRANSLATION OR ACCOUNTING EXPOSURE

INCORPORATING FOREIGN ASSETS, LIABILITIES AND INCOME IN PARENT COMPANY FINANCIAL STATEMENTS

ECONOMIC OR OPERATING EXPOSURE

EFFECT OF EXCHANGE RATE FLUCTUATIONS ON FUTURE CASH FLOWS

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Transaction exposure deals with changes in cash flows that result from existing contractual obligations denominated in Foreign currency. It arises whenever the enterprise has foreign currency denominated receivables or payables, entered and settled at different timings.

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Forward Contracts Option Contracts Futures Swaps

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DEFINITION

A Forward Contract is an agreement between Bank and Customer where Bank agrees to buy/sell foreign exchange at a future date at a rate fixed on the date of contract. It is obligatory on the part of the customer to fulfill the contract.

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Fixed date basis. Option forward period basis.

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Cash - same day settlement Tom next working day settlement Spot - second working day settlement Forward beyond second day settlement

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Intervention currency-in our country, it is US Dollars Principle applied for obtaining cross rate is called chain rule

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P urchase fro m me rchant Interbank Spot Prem./Dis. (+/-) Ex.Margin (-) Merchant rate ( = )

Sale to me rchant Spot ( +/-) (+) (=)

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USD/INR Spot 55.6500/6700 Fwd 1m 0800/0900 2m 1700/1900 3m 2600/2800 6m 5400/5700

GBP/USD 1.6330/6340 0022/0021 0045/0043 0067/0064 0135/0130

EURO/USD 1.2580/2590 0078/0068 0140/0120 0200/0160 0405/0385

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An Option confers on the buyer the eligibility to buy or sell a sum of foreign currency at a predetermined rate on a future date without investing him with an obligation to do so. On the due date the buyer of the option may elect to buy/sell or he may choose to let it go unused.

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Parties Option Buyer Option Seller Call and Put Options Call Buyer has right to purchase the currency. Put Buyer has right to sell the currency. Premium Consideration for the seller to offer the right to the buyer Strike Price Exchange rate Maturity Date on which contract expires Execution When the Buyer can exercise his right.

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American Option

The Option Buyer can exercise his right on any day during the currency of the contract.

European Option

The Option Buyer can exercise his rights only on its maturity date.

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Future Contract conveys the right to purchase or sell a specified quantity of a foreign currency at a fixed exchange rate on a specified future date. Currency Future Contracts are traded in recongnised stock exchanges.

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Currency Size Quotation Maturity Due Date Last Trading day Settlement price Settlement Trading hours Risk Management Measures

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Financial Swap is arrangement where by the financial streams are exchange between two parties. Types
Interest Rate Swaps Currency Swaps

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