A FINAL PROJECT STUDY UNDERTAKEN

IN
PUNJAB NATIONAL BANK

ON
FOREIGH EXCHANGE OPERATIONS

A training report submitted in partial fulfillment of the requirement for the degree of

MASTERS OF BUSINESS ADMINISTRATION

(2011-2013)

Submitted to: - Submitted by:-

Dr. B.B Singla Dheeraj Kumar
Assistant Professor MBA 2nd year SEC A
Roll No- 1 2 0 4 2 6 2 2 8

SCHOOL OF MANAGEMENT STUDIES

P U N J A B I U N I V E R S I T Y, PAT I A L A
 ACKNOWLEGEMENT

Doing a project involves concerned efforts of different persons at different stages. It has been
rightly remarked Success is the satisfactory achievement of the chosen and desired
objectives. It is attained of major object. Your earnest desired work and burning great
enthusiasm and dedication. The project encourages the generosity of my teachers,
colleagues and friends, although I shall not be able to thank them, however, I can try.

The deep sense of gratitude that I owe to our learned guide and supervisor Sr. Amarjit Singh,
Chief Manager, International Banking Division, Bhikhaji Cama Place, New Delhi is
fathomless for words to be expressed for his insurmountable help, constant encouragement,
invaluable guidance, generous nature which helped me to learn and gather the knowledge in
all most important areas of Foreign Exchange.

I express our feelings of reverence for Mrs. Suman Aggarwal and Mr. , Senior Managers,
Centralized Banking of Foreign Trade, Mr. Alok Bhargava, Senior Manager, International
Branch Banking, Mr. C.M. Talwar Manager at Retail Branch and Ms. Romi Hemrajani, Mrs.
Sushila, Mr. Girish Sikka, Mr. Deepak Kumar and Mr. Joshi Senior Managers in Foreign
Exchange Office for his moral support, guidance and encouragement and for helping me by
suggesting relevant sources of information throughout the course of this project.

It is my privilege to express special thanks to my Project In charge Dr. Bharat Bhushan Singla
for their constant encouragement and guidance during the project. They have been constant
source of inspiration and helped me in each step.
 TABLE OF CONTENTS

S.NO Chapter Name Page No.

Executive Summary 5-6

1. Introduction -----------------------------------------------------
- - - Industry 7-10
- - - Organization 11-64
- - - Scope of Study 65

2. Objectives -------------------------------------------------------- 66

3. Research Methodology and Objective of Study --------- 67-68

Methods of Data Collection ------------------------------------ 69-70

Limitations --------------------------------------------------------- 71

4. Analysis & Interpretation ------------------------------------ 72-78

5. Recommandations & Suggestions -------------------------- 79

6. Conclusion ------------------------------------------------------- 80

Bibliography ---------------------------------------------------- 81

Annexure ---------------------------------------------------------
Questionnaire 82
Bill of Lading 83
Invoice 84
Specimen Letter of Credit 85-87
 LIST OF TABLES / FIGURES / ABBREVATIONS

Tables:-
1. Table, Banks in India failed between 1913 and 1918 Page No.2
2. Performance of the banks in terms of business and profit Page No. 6
3. Net Foreign Exchange earned - Page No.22
4. Types of Invoices - Page No.27, 28
5. List of Accepted Currencies in India Page No. 38
Figures:-
A. Structure of Indian Banking Industry, Page No. 4
B. Organization Structure, Page No. 7
C. Advance payment, Page No. 13
D. Documents against Payment, Page No. 14
E. Documents against Acceptance, Page No. 15
F. Work on LC, Page No. 16
G. Type of LC Accounts, Page No. 19
H. Free On Board, Page No. - 20
I. Cost & Freight, Page No. - 20
J. Cost Insurance & Freight, Page No. - 21
K. Transshipment Bill, Page No. 36
Abbreviations:-
ADs Authorized Dealers
ATM - Automatic Teller Machines
BOE Bill of Exchange
BOL Bill of Lading
BOP Balance of Payment
CBS - Core Banking Solution
C & F Cost & freight
CIF Cost Insurance & Freight
CSR - Corporate Social Responsibility
DGFT Director General of Foreign Trade
ECGC Export Credit & Guarantee Corporation
FCNR Foreign Currency Non-resident (External)
FEDAI Foreign Exchange Dealers' Association of India
FEMA Foreign Exchange Management Act
FERA Foreign Exchange Regulation Act
FSA - Financial Services Authority
FTA Foreign Trade Agreements
IEC Importer Exporter Code
IBD - International Banking Division
KYC Know Your Customer
LC Letter Of Credit
MNC Multi National Corporation
MTSS Money Transfer Service Scheme
NRE Non- Resident External
NRI - Non- Resident of India
NRO Non- Resident Ordinary
PC Packing Credit
PCFC - Pre-shipment Credit in Foreign Currency
PNB Punjab National Bank
PO Purchase Order
RBI - Reserve Bank of India
RDA Rupee Drawing Arrangement
RFC - Resident Foreign Currency
 Executive Summary

Today, business have become very much complex as compare to previous days. In area of
business management like many organizations providing products and many other
companies providing services to their users/consumers. In this connection many companies
further deals with product exchange i.e. import & export of the products, services and
exchange of technology, in commerce these are known as FOREIGN EXCHANGE
OPERATIONS. All the transactions in the foreign exchange process majorly doing by the
all Indian banks.
The exchange process is a key financial variable that affects decisions made by
foreign exchange investors, exporters, importers, bankers, businesses, financial institutions,
policymakers and tourists in the developed as well as developing world. Fluctuations affect
the value of international investment portfolios, competitiveness of exports and imports,
value of international reserves, currency value of debt payments, and the cost to tourists in
terms of the value of their currency. Movements in Forex markets thus have important
implications for the economys business cycle, trade and capital flows and are therefore
crucial for understanding financial developments and changes in economic policy.
Accordingly, the study analyses the structure of Indias foreign exchange market
and terms of participants, instruments and trading platform as also turnover in the Indian
foreign exchange market and forward premia. The Indian foreign exchange market has
evolved over time as a deep, liquid and efficient market as against a highly regulated market
prior to the 1990s. The market participants have become sophisticated, the range of
instruments available for trading has increased, the turnover has also increased, while the
bidask spreads have declined
Foreign Exchange Policy of Reserve Bank of India: - A Review
Foreign Exchange Market in India operates under the Central Government of India and
executes wide powers to control transactions in foreign exchange. The Foreign Exchange
Management Act, 1999 or FEMA regulates the whole Foreign Exchange Market in India.
Before the introduction of this act, the foreign exchange market in India was regulated by the
Reserve Bank of India through the Exchange Control Department, by the Foreign Exchange
Regulation Act or FERA, 1947. After independence, FERA was introduced as a temporary
measure to regulate the inflow of the foreign capital. But with the Economic and Industrial
development, the need for conservation of foreign currency was urgently felt and on the
recommendation of the Public Accounts Committee, the Indian government passed the
Foreign Exchange Regulation Act, 1973 and gradually, this act became famous as FEMA.
Early Years of Foreign Exchange Market Until 1992, all Foreign Investments in India and
the repatriation of Foreign Capital required previous approval of the government. The
Foreign Exchange Regulation Act rarely allowed foreign majority holdings for Foreign
Exchange in India. However, a new Foreign Investment Policy announced in July 1991,
declared automatic approval for Foreign Exchange in India for thirty-four industries. These
industries were designated with high priority, up to an equivalent limit of 51 percent. The
foreign exchange market in India is regulated by the Reserve Bank of India through the
Exchange Control Department. Initially, the Government required that a companys routine
approval must rely on identical exports and dividend repatriation, but in May 1992, this
requirement of Foreign Exchange in India was lifted, with an exception to low-priority
sectors. In 1994, foreign nationals and non-resident Indian investors were permitted to
repatriate not only their profits but also their capital for Foreign Exchange in India. Indian
exporters enjoyed the freedom to use their export earnings as they found it suitable.
However, transfer of capital abroad by Indian nationals is only allowed in particular
circumstances, such as emigration. Foreign Exchange in India is automatically made
accessible for imports for which import licenses are widely issued.
 INDIAN BANKING INDUSTRY

INTRODUCTION:-
Banking in India originated in the last decades of the 18th century. The first banks
were The General Bank of India, which started in 1786, and Bank of Hindustan, which
started in 1790; both are now defunct. The oldest bank in existence in India is the State Bank
of India, which originated in the Bank of Calcutta in June 1806, which almost immediately
became the Bank of Bengal. This was one of the three presidency banks, the other two being
the Bank of Bombay and the Bank of Madras, all three of which were established under
charters from the British East India Company. For many years the Presidency banks acted as
quasi-central banks, as did their successors. The three banks merged in 1921 to form the
Imperial Bank of India, which, upon India's independence, became the State Bank of India in
1955.
History
Merchants in [Calcutta] established the Union Bank in 1839, but it failed in 1848 as a
consequence of the economic crisis of 1848-49. The Allahabad Bank, established in 1865
and still functioning today, is the oldest Joint Stock bank in India.(Joint Stock Bank: A
company that issues stock and requires shareholders to be held liable for the company's debt)
It was not the first though. That honor belongs to the Bank of Upper India, which was
established in 1863, and which survived until 1913, when it failed, with some of its assets
and liabilities being transferred to the Alliance Bank of Simla. Foreign banks too started to
app, particularly in Calcutta, in the 1860s. The Comptoire d'Escompte de Paris opened a
branch in Calcutta in 1860, and another in Bombay in 1862; branches in Madras and
Pondicherry, then a French colony, followed. HSBC established itself in Bengal in 1869.
Calcutta was the most active trading port in India, mainly due to the trade of the British
Empire, and so became a banking center. The first entirely Indian joint stock bank was the
Oudh Commercial Bank, established in 1881 in Faizabad. It failed in 1958. The next was the
Punjab National Bank, established in Lahore in 1895, which has survived to the present and
is now one of the largest banks in India.
Around the turn of the 20th Century, the Indian economy was passing through a relative
period of stability. Around five decades had elapsed since the Indian Mutiny, and the social,
industrial and other infrastructure had improved. Indians had established small banks, most
of which served particular ethnic and religious communities. The presidency banks
dominated banking in India but there were also some exchange banks and a number of
Indian joint stock banks. All these banks operated in different segments of the economy. The
exchange banks, mostly owned by Europeans, concentrated on financing foreign trade.
Indian joint stock banks were generally under capitalized and lacked the experience and
maturity to compete with the presidency and exchange banks. This segmentation let Lord
Curzon to observe, "In respect of banking it seems we are behind the times. We are like some
old fashioned sailing ship, divided by solid wooden bulkheads into separate and
cumbersome compartments." The period between 1906 and 1911, saw the establishment of
banks inspired by the Swadeshi movement. The Swadeshi movement inspired local
businessmen and political figures to found banks of and for the Indian community. A number
of banks established then have survived to the present such as Bank of India, Corporation
Bank, Indian Bank, Bank of Baroda, Canara Bank and Central Bank of India.
The fervour of Swadeshi movement lead to establishing of many private banks in Dakshina
Kannada and Udupi district which were unified earlier and known by the name South Canara
( South Kanara ) district. Four nationalised banks started in this district and also a leading
private sector bank. Hence undivided Dakshina Kannada district is known as "Cradle of
Indian Banking".
During the First World War (19141918) through the end of the Second World War (1939
1945), and two years thereafter until the independence of India were challenging for Indian
banking. The years of the First World War were turbulent, and it took its toll with banks
simply collapsing despite the Indian economy gaining indirect boost due to war-related
economic activities. At least 94 banks in India failed between 1913 and 1918 as indicated in
the following table 1:

Number of Authorised Paid-up

Years banks capital Capital
that failed (Rs. Lakhs) (Rs. Lakhs)
1913 12 274 35
1914 42 710 109
1915 11 56 5
1916 13 231 4
1917 9 76 25
1918 7 209 1
Nationalisation
Despite the provisions, control and regulations of Reserve Bank of India, banks in
India except the State Bank of India or SBI, continued to be owned and operated by private
persons. By the 1960s, the Indian banking industry had become an important tool to facilitate
the development of the Indian economy. At the same time, it had emerged as a large
employer, and a debate had ensued about the nationalization of the banking industry. Indira
Gandhi, then Prime Minister of India, expressed the intention of the Government of India in
the annual conference of the All India Congress Meeting in a paper entitled "Stray thoughts
on Bank Nationalisation." The meeting received the paper with enthusiasm. Thereafter, her
move was swift and sudden. The Government of India issued an ordinance ('Banking
Companies (Acquisition and Transfer of Undertakings) Ordinance, 1969')) and nationalised
the 14 largest commercial banks with effect from the midnight of July 19, 1969. These banks
contained 85 percent of bank deposits in the country. Jayaprakash Narayan, a national leader
of India, described the step as a "masterstroke of political sagacity." Within two weeks of the
issue of the ordinance, the Parliament passed the Banking Companies (Acquisition and
Transfer of Undertaking) Bill, and it received the presidential approval on 9 August 1969. A
second dose of nationalization of 6 more commercial banks followed in 1980. The stated
reason for the nationalization was to give the government more control of credit delivery.
With the second dose of nationalization, the Government of India controlled around 91% of
the banking business of India. Later on, in the year 1993, the government merged New Bank
of India with Punjab National Bank. It was the only merger between nationalized banks and
resulted in the reduction of the number of nationalised banks from 20 to 19. After this, until
the 1990s, the nationalised banks grew at a pace of around 4%, closer to the average growth
rate of the Indian economy.
STRUCTURE OF INDIAN BANKING INDUSTRY
Banking Industry in India functions under the sunshade of Reserve Bank of India -
the regulatory, central bank. Banking Industry mainly consists of:
Commercial Banks
Co-operative Banks
The commercial banking structure in India consists of: Scheduled Commercial Banks
Unscheduled Bank. Scheduled commercial Banks constitute those banks which have been
included in the Second Schedule of Reserve Bank of India (RBI) Act, 1934. RBI in turn
includes only those banks in this schedule which satisfy the criteria laid down vide section
42 (60) of the Act. Some co-operative banks are scheduled commercial banks although not
all co-operative banks are. Being a part of the second schedule confers some benefits to the
bank in terms of access to accommodation by RBI during the times of liquidity constraints.
At the same time, however, this status also subjects the bank certain conditions and
obligation towards the reserve regulations of RBI. For the purpose of assessment of
performance of banks, the Reserve Bank of India categorise them as public sector banks, old
private sector banks, new private sector banks and foreign banks.

PUNJAB NATIONAL BANK

PROFILE

A SAGA OF EXCELLENCE
VISION

"To be a Leading Global Bank with Pan India footprints and become a household brand in
the Indo-Gangetic Plains providing entire range of financial products and services under one
roof".
MISSION

"Banking for the Unbanked".

With over 60 million satisfied customers and more than 5100 offices including 5 overseas

branches, PNB has continued to retain its leadership position amongst the nationalized
banks. The bank enjoys strong fundamentals, large franchise value and good brand image.
Besides being ranked as one of India's top service brands, PNB has remained fully
committed to its guiding principles of sound and prudent banking. Apart from offering
banking products, the bank has also entered the credit card, debit card; bullion business; life
and non-life insurance; Gold coins & asset management business, etc. PNB has earned many
awards and accolades during the year in appreciation of excellence in services, Corporate
Social Responsibility (CSR) practices, transparent governance structure, best use of
technology and good human resource management. Since its humble beginning in 1895 with
the distinction of being the first Swadeshi Bank to have been started with Indian capital,
PNB has achieved significant growth in business which at the end of March 2012 amounted
to Rs 6, 73, 363 crore. PNB is ranked as the 2nd largest bank in the country after SBI in
terms of branch network, business and many other parameters. During the FY 2011-12, with
36.2 % share of CASA to domestic deposits, the Bank achieved a net profit of Rs 4, 884

crore. Bank has a strong capital base with capital adequacy ratio of 12.63% as on Mar12 as
per Basel II with Tier I and Tier II capital ratio at 8.44% and 3.98% respectively. As on
March11, the Bank has the Gross and Net NPA ratio of 2.93% and 1.52% respectively.
During the FY 2011-12, its ratio of Priority Sector Credit to Adjusted Net Bank Credit at
40.7% & Agriculture Credit to Adjusted Net Bank Credit at 29.48 % was also higher than
the stipulated requirement of 40% & 18% respectively. The Bank has been able to maintain
its stakeholders interest by posting an improved NIM of 3.96% in Mar11 (3.57% Mar10).
The Earning per Share improved to Rs 140.60 (Rs 123.86 Mar10) while the Book value per
share improved to Rs 661.20 (Rs 514.77 Mar10). Punjab National Bank continues to
maintain its frontline position in the Indian banking industry. In particular, the bank has
retained its NUMBER ONE position among the nationalized banks in terms of number of
branches, Deposit, Advances, total Business, Assets, Operating and Net profit in the year
2010-11. The impressive operational and financial performance has been brought about by
Banks focus on customer based business with thrust on CASA deposits, Retail, SME & Agri
Advances and with more inclusive approach to banking; better asset liability management;
improved margin management, thrust on recovery and increased efficiency in core
operations of the Bank. The performance highlights of the bank in terms of business and
profit are shown below:
Rs. In Crore
Parameters Mar'09 Mar'10 Mar'11 Mar 12

Operating Profit 5690 7326 9056 2936

Net Profit 3091 3905 4433 4884

Deposit 209760 249330 312899 379588

Advance 154703 186601 242107 293775

Total Business 364463 435931 555005 673363

Bank always looked at technology as a key facilitator to provide better customer service and
ensured that its IT strategy follows the Business strategy so as to arrive at Best Fit. The
Bank has made rapid strides in this direction. All branches of the Bank are under Core
Banking Solution (CBS) since Dec08, thus covering 100% of its business and providing
Anytime Anywhere banking facility to all customers including customers of more than
3515 rural & semi urban branches. The Bank has also been offering Internet banking services
to its customers which also enables on line booking of rail tickets, payment of utilities bills,
purchase of airline tickets, etc. Towards developing a cost effective alternative channels of
delivery, the Bank with 6009 ATMs has the largest ATM network amongst Nationalized
Banks.
With the help of advanced technology, the Bank has been a frontrunner in the industry so far
as the initiatives for Financial Inclusion is concerned. With its policy of inclusive growth, the
Banks mission is Banking for Unbanked. The Bank has launched a drive for biometric
smart card based technology enabled Financial Inclusion with the help of Business
Correspondents/Business Facilitators (BC/BF) so as to reach out to the last mile customer.
The Bank has started several innovative initiatives for marginal groups like rickshaw pullers,
vegetable vendors, dairy farmers, construction workers, etc. Bank has launched a welfare
scheme of adoption of village viz., PNB VIKAS. Under the scheme, Bank has selected 117
villages (60 in lead districts and 57 in non lead district) in different circles for all-round
improvement in the living standards of the villagers. Besides, Bank has formed PNB
PRERNA, an association of the wives of the Banks senior management. The association
through its voluntary initiatives has undertaken activities like distribution of food to the poor
and needy, provision of computers, books, stationary items to poor girl students at various
orphanages and schools etc. Backed by strong domestic performance, the Bank is planning to
realize its global aspirations. Bank has opened one branch each at Kabul and Dubai, two
branches at Hong Kong and an Off Shore Banking Unit at Mumbai. In addition to the above,
Bank has Representative offices at Almaty, Dubai, Shanghai and Oslo, a wholly owned
subsidiary in UK with 7 branches and a subsidiary each in Kazakhstan & Bhutan, and joint
venture with Everest Bank Ltd. Nepal. During the year, Bank acquired majority equity stake
of 63.64% in Dana Bank of Kazakhstan.
Subsidiaries and Joint Ventures in Overseas
PNBIL
Punjab National Bank (International) Limited (PNBIL) is a wholly owned UK subsidiary of
Punjab National Bank, India. PNBIL was incorporated in UK on 13th April 2006 and
registered with the Companies House in England & Wales under No. 5781326. PNBIL was
authorised by the Financial Services Authority (FSA) on 13th April 2007 to conduct Banking
Business in UK under Registration No. 459701. PNBIL started banking operations in UK on
10th of May 2007 from two locations. The corporate office of PNBIL is at 87, Gresham
Street, London EC2V 7NQ (UK). Presently PNBIL has 7 Branches as under:

1. At 87, Gresham Street, London EC2V 7NQ (UK)

2. At 90, South Road, Southall, Middlesex UB1 1RD (UK)
3. At 160 Belgrave Road, Leicester LE4 5AU (UK)
4. At 290 Soho Road, Birmingham B21 9LZ (UK)
5. At 47, Crane book Road, Ilford, Essex, London (UK)
6. At 188 Ealing Road, Wembley HA0 4QD (UK)
7. At 502-504 Dudley Road, Wolver Hampton, WV2 3AA
DRUK PNB Bank Ltd
Druk PNB Bank Ltd. (DPNBL) is our Joint Venture Subsidiary in Bhutan with our Equity
participation to the extent of 51%. It started operations on 27 th January, 2010 and has three
branches- one each at Thimphu, Phentsholing and Wangduephodrang
Sh N.K. Arora, DGM is the CEO.
Contact details of Sh. N.K. Arora are:
Phone No. 00975- 17116440
E Mail id: nk_arora@pnb.co.in
JSC (SB) PNB Kazakhstan
Our bank has acquired 80.95% stake in JSC (SB) PNB, Kazakhstan. The bank has its head
quarters in Almaty. It has five branches at Almaty, Pavlador, Karganda, Astana & Taraz.
Everest Bank Ltd, Kathmandu, Nepal
Everest Bank Limited (EBL) is our joint venture in Nepal with equity participation to the
extent of 20%. Under a Technical Services Agreement, our Bank is providing Top
Management Support. The operations of EBL with Management Support from our Bank
started in January, 1997. EBL presently has a network of 44 branches in Nepal. EBL has
started Financial Inclusion concept in Nepal.
Domestic Subsidiaries:-
1. PNB GILTS LTD.
PNB Gilts Ltd., a subsidiary of the Bank, is engaged in the business of trading in Govt.
securities, treasury bills and Non SLR Investments. It is also engaged in dealing in Money
Market Instruments (Call/Notice/Term Money, Repo /Reverse Repo, Inter-corporate
Deposits, Commercial Paper, Certificate of Deposit) and Mutual Funds Distribution. The
company is listed at NSE and BSE.

2. PNB HOUSING FINANCE LTD

PNB Housing Finance Ltd. is engaged in providing housing loans for purchase, construction
and upgradation of a dwelling unit. The company offers Loans for construction or for
purchase of house/flat from development authorities and also from private builders/ group
housing societies as well as for renovation/ repairs. Company also provides finance for
construction of residential projects. Loans to NRIs are also provided for purchase/
construction of house/ flat along with a resident/ non-resident co-borrower.
3. PNB INVESTMENT SERVICES LTD
PNB Investment Services Ltd, a wholly owned subsidiary, has been set up by the Bank for
carrying out Merchant Banking Business. It provides services for Project Appraisal, Loan
Syndication, and Debt Placement and to execute IPOs/FPO/QIPs. PNBISL is registered with
SEBI as a Category- I Merchant Banker.
4. PNB INSURANCE BROKING Pvt. Ltd.
5. PNB LIFE INSURANCE Co. Ltd.
The Bank is holding majority stake in above two companies, jointly with Vijaya Bank, minor
shareholder.
Domestic Joint Ventures
The Bank has the following Joint Ventures:
1. Principal PNB Asset Management Company Pvt. Ltd
2. Principal Trustee Company Pvt. Ltd
3. Assets Care Enterprises Ltd.
4. India Factoring & Finance Solutions Pvt. Ltd.
PNB now brings to you Centralized Banking Solution (CBS). An inter-branch networking
and data sharing platform which makes 'Anytime Anywhere ' banking a reality. With over
5874 CBS Outlets of Bank, the status of customers is changing from 'Customer of the
branch' to "Customer of the bank"
CBS - 'Benefits' to Customers
Instant fund transfers
Cheques collection / deposit across cities
Cheque can be deposited at the centre where it is drawn
Interconnected ATMs
Access of Accounts through any CBS connected branch
SWIFT remittance facility
Instant generation of statement of accounts
At present CBS facility is available in over 5874 Service Outlets at the 2922 Cities/Centres
as on 30.04.2012.
ORIGIN
Punjab under the British especially after annexation in 1849 witnessed a period of rapid
development giving rise to a new educated class fired with a desire for freedom from the
yoke of slavery. Amongst the cherished desires of this new class was also an overriding
ambition to start a Swadeshi Bank with Indian Capital and management representing all
sections of the Indian community. Firstly the idea mooted by, Rai Mool Raj of Arya Samaj
who, as reported by Lal Lajpat Rai, had long cherished the idea that Indians should have a
national bank of their own. He felt keenly "the fact that the Indian capital was being used to
run English banks and companies, the profits accruing from which went entirely to the
Britishers whilst Indians had to contend themselves with a small interest on their own
capital". On May 23, 1894, the efforts materialized. The founding board was drawn from
different parts of India professing different faiths and a varied back-ground with, however,
the common objective of providing country with a truly national bank which would further
the economic interest of the country. The Bank opened for business on 12 April, 1895. Sh.
Dayal Singh Majithia was the first Chairman, Lala Harkishan Lal, the first secretary to the
Board and Shri Bulaki Ram Shastri Barrister at Lahore, was appointed Manager. Lala Lajpat
Rai was the first to open an account with the bank which was housed in the building opposite
the Arya Samaj Mandir in Anarkali in Lahore. His younger brother joined the Bank as a
Manager. Authorised total capital of the Bank was Rs. 2 lakhs, the working capital was Rs.
20000. It had total staff strength of nine and the total monthly salary amounted to Rs. 320.
The first branch outside Lahore was opened in Rawalpindi in 1900. The Bank made slow,
but steady progress in the first decade of its existence. Lala Lajpat Rai joined the Board of
Directors soon after in 1913, the banking industry in India was hit by a severe crisis
following the failure of the Peoples Bank of India founded by Lala Harkishan Lal. The years
1926 to 1936 were turbulent and loss ridden ones for the banking industry the world over.
The 1929 Wall Street crash plunged the world into a severe economic crisis. The five years
from 1941 to 1946 were ones of unprecedented growth. From a modest base of 71, the
number of branches increased to 278. Deposits grew from Rs. 10 crores to Rs. 62 crores. On
March 31, 1947, the Bank officials decided to leave Lahore and transfer the registered office
of the Bank to Delhi and permission for transfer was obtained from the Lahore High Court
on June 20, 1947. PNB was then housed in the precincts of Sreeniwas in the salubrious Civil
Lines, Delhi. Many a staff member fell victim to the widespread riots in the discharge of
their duties. The conditions deteriorated further. The Bank was forced to close 92 offices in
West Pakistan constituting 33 percent of the total number and having 40% of the total
deposits. The Bank, however, continued to maintain a few caretaker branches. The Bank then
embarked on its task of rehabilitating the displaced account holders. The migrants from
Pakistan were repaid their deposits based upon whatever evidence they could produce. Such
gestures cemented their trusts in the bank and PNB became a symbol of Trust and a name
you can bank upon. Surplus staff posed a big problem. Fast expansion became a priority. The
policy paid rich dividends by opening up an era of phenomenal growth. In 1951, the Bank
took over the assets and liabilities of Bharat Bank Ltd. and became the second largest bank
in the private sector. In 1962, it amalgamated the Indo-Commercial Bank with it. From its
dwindled deposits of Rs. 43 crores in 1949 it rose to cross the Rs. 355 crores mark by the
July 1969. Its number of offices had increased to 569 and advances from Rs. 19 crores in
1949 to Rs. 243 crores by July 1969 when it was nationalized. Since inception in 1895, PNB
has always been a "People's bank" serving millions of people throughout the country.
PRODUCTS/SERVICES
Punjab National Bank is extensively catering to banking needs of Non-resident Indians,
Importers & Exporters particularly relating to foreign exchange business including Imports
& Exports of Goods & Services as also Remittances etc.
PNB OFFERS VARIOUS SCHEMES / PRODUCTS /SERVICES RELATING TO
INTERNATIONAL BANKING. THE BROAD DETAILS THRREOF ARE AS UNDER
Foreign Currency Non-resident Deposit A/c Scheme (FD)
Non-resident External Deposit A/c Scheme (SB/CA/FD)
Non-resident Ordinary Deposit A/c Scheme (SB/CA/FD/RD)
Foreign Inward Remittances Rupee Drawing Arrangements / Speed Remittances
with Exchange Houses
Money Transfer Schemes
PNB-NRI REMIT Scheme
Exchange of Foreign Currency Travellers Cheques/Notes
World Travel Card
Buyers / Suppliers Credit against Imports into India
Letter of Guarantee (issued on behalf of foreign bank)
Precious Metal Business (on consignment basis)
Gold (Metal) Loan Scheme for Domestic Jewellery Manufacturers.
ECGC Bank assurance - Selling of policies to exporters
 INTRODUCTION
International Trade
In simple terms, International Trade means export and import of merchandise
goods between countries and from one place to other place. In earlier days, the barter system
existed and goods were exchanged for goods or gold. When the domestic markets began to
saturate, countries tried to expand beyond international boundaries and sought foreign
markets. Trading between two countries has many difficulties like language barriers, time
zones, country laws, market practices, etc. Over a period of time the trades of goods between
countries have been standardized and the purchase and sell of goods have more or less fixed
patterns regarding rules, regulations, terms and conditions. We give below some of the most
commonly used ways of exporting merchandise goods.
Advance Payment
Documents against Payment
Documents against Acceptance
Letter of Credit
Open Account
Advance Payment
These terms mean that the seller is paid before he ships the goods.

India USA
1. Places order and makes payment

2. Ships goods after receipt of payment

Seller Buyer
Such type of transaction occurs when seller is strong or when it is sellers market.

Sellers view Buyers view

Most secure form of trading
Receives money in advance for
shipment, thus covered from risk of
non- payment by the buyer.
Has good cash flow
Can use the money
manufacturing the goods.
Documents against Payment (DP)
Least secure form of trading
Pays money in advance and hence
carries risk in case the seller fails to
honour the sale contract and ship
goods. He must have complete
confidence in the seller.
Drains his cash flow
for Agrees to this method if the goods
are not available from any other
source.

In this type of transaction, the buyer pays before he takes possession of the goods.

India 1. Places Order USA

2. Ships the goods

Seller Buyer
3. submits 5. Ask importer to
9. Makes the 6. Makes make payment
Shipping Payment
documents Payment 7. Releases
to bank shipping
Documents

4. Forwards the shipping documents

8. Remits the payments

Sellers Bank Buyers Bank

Such type of transaction occurs when seller is strong or when it is sellers market. Greater degree of
risk for buyer as he has to pay before getting delivery of goods.

Sellers view Buyers view

More Secure form of trading
Payment is secure since buyer makes
payment before receipt of goods
The buyer may refuse to pay after the
goods have reached. Goods will lie at
foreign port and will be difficult to
dispose off. Seller will have to search
for a new buyer or sell at a discount.
If the goods do not sell, he will have
to bring it back, thus incurring more
costs.
Has good cash flow
Less Secure form of trading
Has to make payment before receipt
of goods.
On risk since he cannot check goods
(for quality, quantity) before making
payment. Thus is depends on seller
meeting the contract terms.
Cash flow is drained

Documents against Acceptance (DA)

This type of transaction involves a Bill of Exchange (BOE). The documents for collection of goods are
handed over to the buyer only after he signs the BOE.

India 1. Places Order USA

 2. Ships the goods

Seller Buyer 5. Ask

3. Submits importer to
11. Makes the 6. Signs BOE. sign BOE
shipping
payment
documents and 7. Releases
Bill of Exchange shipping
9. Makes Payment
to bank Documents
on due date
8. On due date
ask to make
payment
4. Forwards the shipping documents and
BOE

10. Remits the payments

Sellers Bank Buyers Bank

Such type of transaction occurs when seller is not so strong. For the buyer it is vis--vis DP. However
seller carries risk for payment on buyer.

Sellers view Buyers view

Less Secure form of trading More Secure form of trading
Payment is secure since buyer He can check the goods before
accepts BOE. There is a certainty as making payment.
to when the payment will be made.
On risk in case when buyer goes In case he fails to make payment,
bankrupt. legal proceedings can be undertaken.
Export proceeds are realized only on Gets a credit period for making
due date hence cash flow is drained. payment.
The buyer may refuse to sign the
BOE. Goods will lie at foreign port
and will be difficult to dispose off.
Seller will have to search for a new
buyer or sell at a discount. If the
goods do not sell, he will have to
bring it back, thus incurring more
costs.

Letter of Credit
A Letter of Credit (LC) is a document issued by the importers bank in favour of the exporter
giving him the authority to draw bills up to a particular amount (as per the contract price)
covering a specified shipment of goods and assuring him of payment against the delivery of
shipping documents as mentioned in LC.
Parties involved in LC
Seller
Buyer
LC Opening Bank/ LC Issuing Bank: (The bank which issues letter of credit at the request
of the importer.)
LC Advising Bank
LC Negotiating Bank
LC Confirming Bank
How an LC Works:

Buyer is weak
or there is no
past track
record of the
buyer or
country risk is
high. Greater
degree of risk
for buyer,
whilst it is a
secured mode
of payment
for seller.

Sellers view Buyers view

Very secure as an LC is a guarantee Not Applicable
of payment by a bank.
Seller need not worry about delays in Administratively cumbersome.
payment and financial problems of
the buyer as the payment is made by
a bank.
Not costly. High cost since he has to deposit
cash margin for opening LC
On risk if there is political crisis in LC process is time consuming and
buyers country, unless the LC is there is a delay in possession of
confirmed by another bank in goods
another country.
Types of Letter of Credit
Following are the types of LCs:
Documentary Letter of Credit:
A Documentary Letter of Credit is simply a means of opening a credit in favour of someone,
under which a payment will be made by a bank, provided certain conditions are fulfilled. The
word Documentary means that the payment obligations by the bank will be only after
production of correctly completed documents as specified in the LC. There are three types of
Documentary Letter of Credits.
Revocable LC:
This type of letter of credit can be amended, withdrawn or changed at any time without the
consent of the exporter. It gives the buyer maximum security, but little or no security to the
seller. This form of LC is seldom used in practice. A revocable letter of credit is never
confirmed.
Irrevocable LC:
In this type of letter of credit, none of the parties involved has a right to amend, change or
withdraw the letter of credit except with the permission of ALL the parties involved. i.e.
importer, exporter, importers bank and exporters bank. However, the bank can refuse its
payment obligation in the event of non-compliance by the exporter with the terms of credit
or in case of fraud on the part of exporter.
Confirmed Irrevocable
If the seller does not have a confidence in the LC opening bank or the country of the buyer, it
may ask the LC advising bank to confirm the LC. In case the LC Opening bank does not
meet its obligations to pay, the LC advising bank makes good the payment.
Clean Letter of Credit:
In this type of letter of credit, bank does not put any conditions for acceptance and payment
of bill of exchange.
Back-to-Back LC:
In a back to back LC, the exporter opens an LC in favour of his supplier on the back of LC
opened in his favour by importer.
Confirmed LC
When the LC issuing/ opening bank is a weak bank or the concerned country has political
problems, another bank in another country (which is either a strong bank or it is in a country
which does not have political problem) guarantees payment. The bank, which gives such
guarantee, is called LC Confirming bank and LC is called as Confirmed LC. In case the LC
opening bank does not pay, the LC confirming bank makes good the payment.
With Recourse LC
The term Recourse means that the BANK may direct the EXPORTER at any time, to pay to
the BANK an amount equal to the amount remaining unpaid by the IMPORTER. Thus, in
recourse LC exporter is required to make payment to his bank in case importer fails to make
payment.
Red Clause LC
Such LC is opened to provide exporter with advance payment to enable him manufacture
and purchase goods from the local suppliers. In this LC risk of non-submission of
documents or non-execution of order by exporter is on LC opening bank. Since this letter of
credit is printed in Red for the sake of differentiation, it is called Red Clause LC.
Green Clause LC
This type of letter of credit envisages grant of storage facilities at port over and above the
pre-shipment payment to the exporter. In India opening of Green Clause LC covering import
of goods in our country requires prior permission.
The operations of letters of credit have been regulated and are governed by UCPDC 500 of
International Chamber Commerce, Paris.
Open Account
Open account terms means that the seller has agreed to give the buyer a certain credit period
to pay (usually 30 to 90 days after the date of shipment) and the buyer has agreed to pay as
per the agreed terms.
India 3. Pays on Due date USA

1. Places Order

2. Ships the goods

Seller Buyer
Such type of transaction occurs when buyer is strong or when it is buyers market. Here risk is 100%
on the seller.

Sellers view Buyers view

Least Secure form of trading. He
should have complete confidence
that the buyer will pay.
On risk since buyer may not pay on
due date
Should have sufficient liquidity to
allow a credit period to the buyer.
Most Secure form of trading
Can collect and use the goods before
making payment
Gets free credit. Their own lines
from the banks are not used to fund
the credit period.
 Should have confidence in the It is administratively cheaper.
government of the buyers country
that they wont impose any
restrictions for transfer of money
Should have sound knowledge of the
trade practices in the buyers country,
their language for follow-up, time
zone adjustment and the laws of the
country

Terms of Trade (INCOTERMS)

INCOTERMS means International commercial terms. These are set of rules applicable

uniformly to all international trade. They set out the rights and obligations of the exporter
and the importer in international trade transactions. They came in to force w.e.f from 1st July
1990.
The most common ways of exporting goods are:
FOB
C&F
CIF
FOB
FOB means Free On Board. Here the exporter pays for all the costs till the goods are
placed On Board the ship. Once the goods are on board, all the costs are paid by the buyer.

Seller Port on Board On Board Port Buyer

Seller Pays
Transportation
Warehousing

Buyer pays
Freight
Insurance
Transportation

C&F
C & F means Cost & Freight Here the exporter pays for all the costs till the goods are
placed downloaded at the buyers port. The transportation from the port to the final
destination and insurance is borne by the buyer.
 Seller Port On Board On Board Port Buyer

Seller Pays
Transportation
Warehousing
Freight

Buyer pays
Insurance
Transportation

CIF

C I F means Cost Insurance & Freight Here the exporter pays for all the costs till the goods
are downloaded at the buyers port including Insurance. The transportation is borne by the
buyer.

Seller Port On Board On Board Port Buyer

Seller Pays
Transportation
Warehousing
Freight
Insurance
Buyer pays
Transportation

TADE DOCUMENATION
Definition of an Exporter
Exporter means a person who exports or intends to export and holds an Importer-Exporter
Code Number. IEC code is unique for exporter and is registered with Director General of
Foreign Trade (DGFT).
Following are the categories of exporters:
- Manufacturer Exporter means a person who exports goods manufactured by him or
intends to export such goods.
- Merchant Exporter means a person engaged in trade activity and exporting or
intending to export. He can also export goods manufactured by him.
Export Zones
To build marketing infrastructure and expertise required for exports, government has categorized
following:
- EOU means Export Oriented Unit
- EPZ means Export Processing Zone.
- SEZ means Special Economic Zone.
These zones are set up as enclaves and have different tariff structures compared to domestic
business. This provides an internationally competitive duty free environment for export
production at low cost. Thus enabling the products, to be competitive, both quality-wise and
price-wise in the international markets.
Exports of Service
- Service Provider means a person providing:
(i) Supply of a service from India to any other country
(ii) Supply of a service from India to the service consumer of any other country, and
(iii) Supply of a service from India through commercial or physical presence in the
territory of any other country.
(iv) Supply of a service in India relating to exports paid in free foreign exchange.
Types of Exporters
When exporters, service providers achieve a specified level of exports over a period of time,
they can get recognition or registration as
- Export House (EH)
- Trading House (TH)
- Star Trading House (STH)
 - Super Star Trading House (SSTH)
This status is to facilitate the development of business houses specializing in export trade. The
eligibility is on basis of:
- average F.O.B. (F.O.B. Value is explained later in this section) value of goods or
services in the preceding three years, or preceding year
OR
- The Average net foreign exchange earning in FCY and INR in the preceding three
years or Net Foreign Exchange earned in the preceding year.
(INR)
CATEGORY AVG FOB FOB AVG NFE NFE
(3 preceding (Preceding (3 preceding (Preceding
years) year) years) year)
EH 15 CR 22 CR 12 CR 18 CR
TH 75 CR 112 CR 62 CR 90 CR
STH 375 CR 560 CR 312 CR 450 CR
SSTH 1112 CR 1680 CR 937 CR 1350 CR
NFE = Net foreign exchange earned on exports
FOB = Actual invoice value after deducting all freight, Commission & Insurance payable.
EXPORT FINANCE
An exporter may require financial assistance from his bank at both pre-shipment and post-
shipment stages. Export finance is broadly classified into following two categories,
depending upon what stage of export activity the finance is extended:
1. Pre-shipment Finance
This type of finance is available to produce goods before it is shipped / exported. The
types of pre-shipment finance are:
i) Packing Credit
ii) Pre-shipment Credit in Foreign Currency (PCFC)
2. Post-shipment Finance
This type of finance is available after the goods are shipped / exported till the money is
realized from the overseas buyer. The types of post-shipment finance are:
i) Negotiations of export documents under Letter of Credit.
ii) Purchase/Discount of Export Documents
iii) Advances against Documents / Bills sent on Collection Basis
iv) Advances against Exports on Consignment Basis
v) Advances against Cash Incentives / Duty Drawback Entitlements
 vi) Financing Exports under Deferred Payment Arrangements, Turnkey Projects, and
Construction Contracts etc.
Some of the common and the most frequently used finance are highlighted below:
Pre-Shipment Finance:
Packing Credit:
Packing Credit advance is available for the purpose of:
Purchasing raw materials for the goods meant for exports,
Manufacturing them,
Processing them,
Warehousing them,
Transporting to the seaport / airport for export, and
Packing and shipping.
The maximum period for which the credit can be granted is 180 days from the date of
disbursement. The period can be extended by another 90 days at the discretion of the
Commercial Bank, subject to the payment of additional interest by the exporter for extended
period.
Pre-shipment Credit in Foreign Currency (PCFC)
This scheme enables Indian exporters to avail pre-shipment credit in foreign currencies to
finance cost of imported inputs for manufacture of export products. The maximum credit
period for an advance under PCFC is 180 days. The facility for pre-shipment credit limit in
foreign currency is available only to the following categories of the exporters:-
- Export Houses, Trading Houses with annual export turnover exceeding Rs.10 crores.
- Manufacturing units with minimum export orientation of 25% of production or export
turnover of Rs.5 crores, whichever is lower? For this purpose, only physical exports
of commodities will be taken into account and not services. Such exports could be
made either directly by the manufacturer or he can sell to a Trading House, who can
then export.
Advances against Cash Incentives
Advances against Duty Drawback Entitlements
These are not very common and can be ignored for the purpose of this training.
Post Shipment Credit
Post Shipment Credit can be both, short-term (180 days) or medium to long-term (more than
180 days). Banks give Post-shipment credit (short-term) after the shipment of goods and
submission of shipping documents to banks. Following are the types of post-shipment credits
given by banks.
Negotiation of Documents:
Where the export is under a Letter of Credit, the banks accept the documents, check them,
and if they are as per the LC terms, pay the exporter the total amount of the LC, less the bank
interest and charges. This process is called negotiation of documents.
Purchase/Discount of Bills
Where bills are not covered under Letters of Credit, the exporter may ship on a Bill of
Exchange Basis. i.e. DA or DP terms. In such cases also, the banks check the documents,
wait for the acceptance of the BOE by the buyer, and on acceptance, pay the exporter the
value of the BOE. This process is called purchase / Discount of Bills.
Documents on Collection Basis
The term Collection Basis means that the banks send the documents to the buyer through
the buyers bank and the exporters will receive export proceeds only after they are paid by
the buyer. No payment is made to the exporter when he submits the documents. Banks may
also sometimes grant advances against invoices / bills sent on collection basis. This may be
resorted to when the limit available under the Bills purchased scheme is exhausted or when,
some export bills drawn under L/C have discrepancies. Such payments are usually avoided
and not favored by banks. The period of credit will be from the date of negotiation or
collection of export documents to the due date (not more than 180 days in any case)
mentioned on the relative export bill or the date of realization of export proceeds from the
overseas bank.
Advances against Goods sent on Consignment Basis
Need for this type of finance arises where goods are exported on consignment basis at the
risk of the exporter for sale and eventual remittance of sale proceeds by the agent/consignee.
This type of finance is also not favoured by banks.
Advances against Cash Incentives/Duty Drawback
Where the domestic cost of production of certain goods is high in relation to international
price, government may grant some incentives to the exporter so that he may compete
effectively in the overseas market. The banks may at times give advances to the exporter
against these incentives. Government of India have formulated a Duty Drawback Credit
Scheme under which banks are able to grant advances to exporters against their entitlements
of duty drawback on export of goods, free of interest charges. The period of advances will
be up to a maximum 90 days beyond which the bank may not allow the advances or may
charge normal interest applicable to export credit.
Financing Exports under Deferred Payment Arrangements, Turnkey Projects,
Construction Contracts etc.
Post-shipment credit (medium or long term) is given for exports on deferred payment terms
for the period of over one year. Also special RBI approval or EXIM approval is required
for credit period more than 180 days.
While sanctioning the post-shipment credit, the bank will first liquidate the packing credit
from the bill proceeds and then convert the entire amount of the bill into post-shipment
credit.
TRADE DOCUMENTATION
EXPORT DOCUMENTS
Given below are the various documents involved in the export of goods.
Purchase Order
A Purchase Order (PO) is the very first document executed. The Exporter and the Importer
negotiate with each other to sell and purchase goods. The Exporter commits to sell the
Importer:-
- certain goods
- at a certain price and
- At a certain date.
In the Purchase Order all this is put in writing and signed by both the parties. On signing the
PO, there is a commitment on both sides and is legally binding on both sides. PO is not only
important to the exporter and importer, but it is also of concern to their respective countries,
since it affects the balance of payment position of both the countries. It is, therefore, not just
a matter of product, manufacturing, packing, shipment and payment but also one of the
concerns to licensing authorities, exchange control authorities and banks dealing in export
trade. The exporter is required to produce copies of export order to various Government
departments/Financial institutions for many things like - obtaining export licenses for
products covered under restricted items for exports, availing pre-shipment & post-shipment
finance, other incentives, dealing with inspection authorities, insurance underwriters,
customs offices, exchange control authorities, etc. for various purposes.
Order Acceptance
The Order Acceptance is another important commercial document prepared by the exporter
confirming the acceptance of order placed by the importer. Under this document, he
commits the shipment of goods covered at the agreed price during a specified time.
Sometimes, the exporter needs a copy of his order acceptance signed by the importer.
The order acceptance normally covers:
Name and address of the importer
Name and address of the consignee
Port of shipment
Country of final destination
Description of goods
Quantity
Price each and total amount of the order
Terms of delivery
Details of freight and insurance
Mode of transport
Packing and marking details
Terms of payment.
Invoice
It is a prima facie evidence of the contract of sale and purchase. The invoice should be
strictly in accordance with the contract of sale (PO). It contains following details:
Name and Address of Seller
Name and Address of Buyer
Name and address of the consignee
Description of Goods i.e. Technical features, Physical features
Quantity of Goods
Gross Weight / Net Weight
Price of Goods unit price and total price
Country of Origin
Port of Loading & Port of Discharge
Payment Terms
After sale service and warranty details
 Validity of Invoice
Delivery Schedules
There are five types of invoices:

Proforma Commercial Consular Legalised Custom

Invoice Invoice Invoice Invoice Invoice
1. It is an It is a firm Consular It is required It is required
indicative contract of Invoice is a by the by countries
quote from sale for the document Middle East like USA
the exporter shipments required countries. It and Canada.
to the made. It is a mainly by is also called
importer receivable in countries as visaed
the books of like invoice.
accounts of Philippines
the exporter. and South
Africa.
2. It gives a It is It is useful at This invoice Specific
clear idea to fundamental the time of is legalized form is to be
the importer and basic payment of by the supplied by
in respect of document Import duty. consular of the consular
terms and used for Thus importing office of the
conditions of commercial facilitates country by importing
sale and transactions. fast stamping country.
price of clearance of and
goods. goods at attesting.
customs of
importers
country.
3. Acceptance It gives Consular It is same as This
of a description of invoice is consular facilitates
Proforma the goods as certified by invoice entry of
Invoice by per the L/C, if Embassy or except that it merchandise
the buyer is transaction is Trade is not on the into
equivalent to drawn under Consulate of prescribed importing
a Purchase letter of Credit the form. country
order duly Importers under
accepted. country preferential
stationed in traffic.
exporters
country
4. In addition to The exporter
basic terms has to pay to
mentioned the Embassy
above, it concerned
includes: some fees
Order for the
 and Contract certification
No of this
Marks invoice.
and Vessel
No
Packing
specification
s
Terms
of Sale
(FOB,CIF,
C&F)
Details
of shipment
i.e name of
vessel, route,
sailing date,
GRI No, IE
Code,
Marine
Insurance
Reference.

Packing List/Note
A Packing List/Note gives description of goods exported in detail including every part,
component, specifications, etc. It includes following details
1. Date of packing
2. Connecting invoice number
3. Order number
4. Port of Loading
5. Port of Discharge
6. Country of Destination
7. Quantity of goods
8. Description of goods item wise
9. Gross weight and Net Weight
10. Item-wise details
Transport Documents
The following documents are used in export business as transport documents:
Ways of Transport Document Issued
Transport by Sea Bill of Lading
Freight Forwarders Receipt
Air Freight Airway Bill/Air consignment note
Rail/Road Railway Receipt/Consignment note
Post Post Parcel Receipt
Courier Courier Receipt/Way Bill
Bill of Lading
It is a document of title and it is evidence of shipment.
The Bill of Lading is a document issued by the shipping company or its agent:
- acknowledging the receipt of goods mentioned in the bill for shipment on board the
vessel
- undertaking to deliver the goods in the same order and condition as received,
- to the consignee mentioned on the Bill of Lading.
Consignor is one who ships the goods.
Consignee is one who can collect goods from shipping company.
The Bill of Lading contains details such as the:
Name of the consignor
Name and destination of the vessel
Destination of the goods
Description of goods
Quantity of goods
Marks and numbers
Invoice number
GR number
Gross and Net weight
Number of packages
Amount of freight etc.
Date and place of shipment
From the legal point of view, a Bill of Lading is:
i) A formal receipt by the ship-owner or the master of the ship acknowledging that the
goods of the stated specifications, quantity and condition has been received in the
custody of the ship-owner for the purpose of shipment or is on board a certain ship;
ii) A memorandum of the contract of carriage, repeating in detail, the terms of the contract
which was in fact concluded prior to the signing of the bill; and
iii) A document of title of the goods enabling the consignee to dispose of the goods by
endorsement.
Bills of Lading are usually made out in sets of three.
The exporter should submit ALL the sets of Bill of Lading together with the mate receipt to
the shipping company, which would calculate the freight amount on the basis of
measurement or weight as certified by the recognized Chamber of Commerce. On payment
of the freight, the shipping company returns the Bill of Lading duly signed and stamped. If
required, the exporter may prepare additional copies of the Bill of Lading.
In some cases, the exporter may have the Bill made out to his own order or in the name of
the Bank. The consignee or the consignor, as the case may be, may transfer the bill either
by:
- an endorsement, which names the transferee to whom the delivery is to be made or
- By an endorsement in blank (i.e. without naming an endorsee).

Airway Bill/Air Consignment Note

Airway Bill or Air Consignment Note is the receipt issued by the airline company for the
carriage of goods under certain terms and conditions. Airway Bill or Air Consignment Note
is NOT treated as a document of title and is not issued in negotiable form. Airway Bill is
generally issued in three copies. One copy each is for the carrier, consignee and the
consignor.
Post Parcel Receipt
Post parcel receipt evidences the receipt of goods for exports by the post office and it is also
NOT treated as a document of title.
Mates Receipt
Mates Receipt is issued by the Chief of Vessel after the cargo is loaded.
It contains
Name of shipping line
Vessel Name
Port of loading
Port of discharge
Place of delivery
Marks and numbers
Number and kind of containers
Description of goods
Container status/seal number
Gross weight
Condition of cargo at the time of its receipt on board the vessel
Shipping bill number and date.
The mate receipt is of a transferable nature and must be presented immediately at the
shipping companys office to be exchanged into Bill of Lading.
Marine Insurance
In the International trade, when the goods are in transit, they are exposed to marine perils.
Marine Insurance is intended to protect the exporter/importer against the risk of loss or
damage to goods in transit due to marine perils.

In India Marine insurance is governed by the following laws:

1. The Indian Contract Act 1872
2. The Marine Insurance Act 1963
3. The Insurance Act 1938
4. The Insurance Rule 1939
5. The Indian Stamp Act 1899
6. Exchange Control Regulation relating to General Insurance
7. Common Laws
8. Marine Insurance Practice

Marine Insurance includes following types:

1. Insurance of goods in transit by various modes of transport (e.g. Sea, Land, Air, Rail
etc.)
2. Insurance of Ships (e.g. merchant vessels, passenger vessels etc.)
3. Insurance of ship during construction
4. Insurance of ship during breakage
5. Freight Insurance
In India and in majority of countries of the world the clauses drafted by institute of London
underwriters (ILU) are in vogue. There are about 225 clauses in this set. There are other
clauses also in world market like American Clauses or Deutsch Clauses.

For general cargo there are two types of clauses based on mode of transport.
Transit by Sea Transit by Air
i) Institute Cargo Clauses(C) Institute Cargo Clauses(A) ICC (A)
ICC (C)
ii) Institute Cargo Clauses(B) (Excluding carriage by post)
ICC (B)
iii) Institute Cargo Clauses(A)
ICC (A)

The scope of cover under ICC(C), ICC (B) & ICC (A)
ICC(C)
Loss or damage subject to
(i) Fire or explosion
(ii) Vessel or craft being stranded, grounded, sunk or capsized
(iii) Overturning or derailment of land conveyance
(iv) Collision/contract of vessel, craft or conveyance with external object other than
water.
(v) Discharge of cargo at port of distress
(vi) General average sacrifice
(vii) Jettison
ICC (B) above (I) to (vii) points plus the following:
(viii) Earthquake, volcanic eruption
(ix) Washing Overboard
(x) Entry of sea, lake or river water into vessel, craft, hold, conveyance, container,
lift van or place of storage
(xi) Total loss of any package lost overhead or dropped whilst loading onto, or
unloading from, vessel or craft.
ICC (A) above (I) to (xi) points plus the following:
(i) Rainwater damage
(ii) Piracy
(iii) Malicious damage
(iv) Rough handling
(v) Breakage, leakage, denting, scratching etc
(vi) Heating, sweating
(vii) Just by external factors
(viii) Country damage
(ix) Theft, pilferage and non delivery
(x) Hook and sling damage
(xi) Contamination
(xii) Oil damage
(xiii) All other accidental loses/ damage to cargo
ICC (Air) is similar to ICC (A) but it does not cover General Average or Salvage Charges
which are peculiar to sea transit.
Exclusions applicable to all ICC (C), (B) & (A)
1. Willful misconduct of insured
2. Ordinary leakage, ordinary loss in weight or volume, ordinary wear and tear of cargo.
3. Insufficiency or unsuitability of packing or preparation of cargo
4. Inherent vice or nature of cargo
5. Insolvency or financial default of owners, managers, characters or operators of the
vessels. Un-seaworthiness of the vessel or craft and unfitness of vessel, craft,
conveyance, containers or lift vans.
6. Deliberate damage
7. Nuclear losses
8. War Risk
9. Strike, Riots, Civil commotion and terrorism

Insurance is mandatory when goods are shipped on CIF basis.

As soon as the goods are ready for shipment, the exporter has to buy Insurance.
Total Amount to be Insured = Invoice Value + 10%of the Invoice value
Bill of exchange
Bill of exchange is also known as Draft. A bill of exchange is an instrument in writing
containing an unconditional order, signed by the maker, directing a certain person to pay a
certain sum of money only to or to the order of a person or to the bearer of the instrument.
A bill of exchange contains an order from the creditor to the debtor to pay a specified amount
to a person mentioned therein.
- Drawer is the person who draws the bill.
- Drawee is the person who accepts the bill and agrees to pay.
- Payee is the person who receives payment.
Sight draft or Draft drawn at first sight or On demand or On presentation
The exporter expects the importer to make immediate payment upon the presentation of the
draft.
Usance Draft or Usance Bill or Demand Draft
Draft is drawn for payment at a date later than presentation. The bill of exchange or Draft is
drawn in a set of two. Each one bears a reference to the other. When any of the drafts is
paid, the second draft becomes null and void.

NTR (Notification and Transfer of Receivables

This form is used only for factoring. All the documents are enclosed along with this form.
The form is to legally notify the Export Factor of the invoices submitted for factoring.
Export Declaration Forms
As per the Exchange Control Regulations, exporters are required to submit declaration in one
of the following prescribed forms to the prescribed authority before any export of goods
from India is made. The prescribed forms are given below:
Form GR Exports to all countries made other than by Post. This is prepared
manually.
Form SDF This is similar to GR Form except that it is issued by certain offices of
customs where electronic systems are in place.
Form PP Exports to all countries by Parcel Post, except when made on Value
Payable or Cash on Delivery basis.
Form SOFTEX To be used for declaring software exports through data communication
links and receipt of royalty on the software packages/products exported.

1) The GR form is the most important document as far as the regulators are
concerned. The GR Form gives the following:
- the exact amount of Foreign Exchange coming into India at a specific date.
- Control and regulation of exports from India
- To estimate the balance of Payments situation of the country
The details of the GR form are to be reported to RBI on a fortnightly basis. The GR form is
to be released to RBI after the foreign currency is received into India. Authorized dealers
India are not supposed to accept any documents unless the GR form accompanies the export
documents.
Shipping Bill

Shipping Bill is an important document required by the Customs Authorities for allowing
shipment. It is prepared by the exporter and it contains:
Name of the vessel,
Master or agents, flag
Port at which goods are to be discharged
Country of final destination
Exporters name and address
Details about packages
Number and description of goods
Marks and numbers
 Quantity
FOB price, real value as defined in the Sea Customs Act
Whether Indian or Foreign merchandise to be re-exported
Total number of packages with total weight
Value and the name and address of the Importer.
The Shipping Bills are of following types.
i) Duty-free shipping Bill:
This type of Shipping Bill is printed on white paper and used for the goods for which
neither duty nor cess is applicable. It is also used for the goods manufactured out of
materials imported under the duty-free import.
ii) Dutiable Shipping Bill:
This type of shipping bill is used for the goods subject to export duty/cess, which is either
entitled or not entitled for drawback. This shipping bill is used separately in respect of
which export duty is levied on the basis of (a) market price and (b) tariff assessed value,
and printed on yellow paper for all goods except mica and jute.
iii) Drawback Shipping Bill:
If the export of goods is simultaneously by duty free and/or subject to export duty/cess,
this type of shipping bill is compulsorily to be used whether alone or along with any other
shipping bill. This type of shipping bill is printed on the Green paper.
iv) Shipping Bill for Shipment Ex-bond:
In case of goods imported for re-export and kept in-bond, this type of shipping bill is used
which is printed on yellow paper.
Certificate of Origin
It is issued by a recognized Chamber of Commerce, Export Promotion Council or
Government Department.
It certifies that the goods are of Indian origin and are manufactured in India. It is also
required by exporter to categories its product under get concession/ exemptions on duties
from the government.
Manufacturers Certificate
In addition to the certificate of origin, some countries require Manufacturers Certificate
stating that:
- the goods exported by him are manufactured in India
- the goods does not contain any raw material or components imported into India from
other country
G.S.P. Certificate
The EEC countries comprising France, Germany, Belgium, Netherlands, Italy, UK, Ireland,
Denmark and Greece have adopted the Generalized System of Preferences (GSP). Under his
system, manufacturers and semi-manufacturers from developing countries including India
will be entitled to a concessional rate of import duty in these countries.
The Government of India has authorized the Export Inspection Council of India and its
various agencies to issue the GSP Certificate.
2) Certificate of Inspection:-
Certificate of Inspection is issued by the Inspection Agency concerned, certifying that
the consignment has been inspected as required under the Export (Quality Control &
Inspection) Act, 1963 and satisfies the conditions relating to quality control and
inspection as applicable to it and is certified export worthy. In addition to this certificate,
some countries need Clean Report-of-findings under a certificate of SGS. (SGS is a
company who inspects the goods and gives a certificate to that effect).
Transshipment Bill

India Singapore USA

Port of Intermediate Final Port of

Loading Port Destination

In the word Transshipment - Trans stands for transfer and Shipment means cargo i.e. when
cargo is transferred from one ship to another it is called as Transshipment. Sometimes
shipping companies do not have direct ship service to the port of discharge. In such cases,
goods are taken by one vessel (ship) to a port from where they are transferred to another
vessel for delivery to port of discharge.
Transshipment Permit
The transshipment permit is the permission for transshipment of goods from the vessel on
which the same are booked originally to another for export.
FOREIGN EXCHANGE MARKETS
THE EXCHANGE RATE SYSTEM IN INDIA

BALANCE OF TRADE AND BALANCE OF PAYMENT

It is customary to classify a countrys foreign currency receipts and foreign currency
payments under two broad headings

1. Current account transactions

2. Capital Account transactions

Current Account Transactions

Current account transactions relate to export and import of trade goods taking place in the
country. It also includes invisible transactions like services rendered by companies, purchase
of books, subscription to foreign courses, foreign travel related expenses, etc.
The difference between all the inflows minus all the outflows on the current account is called
BALANCE OF TRADE.
It is customary to report all imports on CIF basis and all exports on FOB basis for calculating
balance of trade. Invisibles comprises of items other than that of merchandise trade. Some of
the more important items under this head are travel, transportation, books and periodicals,
dividend payments, etc.
Capital Account Transactions
Capital Account comprises of short-term and long-term international borrowings and
lending. Examples are acquisition of assets in a foreign country, external borrowings,
repayment of external borrowings, investment or disinvestments in shares of overseas
companies, payment of interest on foreign borrowings, etc.
The difference between all the inflows minus all the outflows on the current account plus
capital account is called the BALANCE OF PAYMENT.
A negative on the Bop means tells you whether a country is a debtor (owes money) or a
creditor (has to receive money) vis--vis the rest of the world. India always had a negative
BoP position since independence. India also had a negative Balance of Trade position till
date. This means that the Indian Imports has always been more than its Exports.
Counter Trade

Countries facing balance of payments difficulties (negative BoP i.e. deficit and growing over
a period of time) encourage counter trade as a means of financing exports. Under counter
Trade, imports are paid for, not in convertible currencies but in the form of goods. We have
been invoicing all our exports to the communist countries in Non-Convertible Indian Rupees
and these are used to finance our imports from those countries. In other words, counter trade
can be termed to the barter system of trade. Counter Trade is said to be cost effective and
loaded against the countries having balance of payment difficulties. It was widely believed
that the goods imported by the erstwhile communist countries against Rupee payment terms
were sold to other countries against payment in hard currencies, thus depriving India of
valuable foreign exchange. Countries requesting for country trade, who may have to import
essential goods from abroad, may have to export more of their goods at cheap rates, so as to
meet counter trade obligation. In reality, they may be paying much more for the same goods
imported under Barter than they would have paid in free foreign exchange.
Convertibility of Indian Rupee
A currency is said to be convertible if its holder can convert it, at any time, into any other
generally acceptable foreign currency without any restriction from the monetary authorities.
Following are most commonly used, accepted currencies in India.

GBP Great Britain Pounds

USD U S Dollars
EUR Euro
JPY Japanese Yen
AUD Australian Dollars
SGD Singapore Dollars
CAD Canadian Dollars

Convertible on the current account

When you say that rupee is fully convertible on the current account, it means that for all the
current account transactions, you can convert FCY into INR and vice versa freely without
any restrictions / approval from the monetary authorities (RBI / Ministry of Finance).
Example: If you want to make import payments in USD, you can convert equivalent Rupees

into USD and remit the amount. You need not take RBI approval for the same.
Example: Similarly, if you receive export payments in USD, you can convert the amount in

USD into equivalent Rupees without any RBI approval.

In India, Rupee is fully convertible on the current account, but partially convertible on the
capital account. i.e. you require prior RBI approval to remit money for capital account
transactions. The restrictions are put on convertibility of rupee to ensure that it does not
become a channel for flight of capital from country.
Rupee can be

Fully Convertible Partially Convertible Non-Convertible

Rupee is Fully convertible Rupee is partially Not Applicable
for following transactions: convertible for Capital
Travel account transactions e.g.
Business travel Investments
Travel for Medical In Shares abroad by
purpose residents
For Education In debt securities
For Pilgrimage abroad by residents
Transportation In real estates abroad
Freight on imports by residents
Freight on exports Repatriation
Shipping remittance Of foreign
by foreign/ India investments in shares,
companies debt markets
Insurance Premium, Of foreign
commission & investments in
payments subsidiaries/ branches,
Services like Bank in real estates
charges, commission, Repayment
Soft/Hardware Long term/ Medium
consultancy services, term loans, NR
Computer services, deposits, short term
Technical fees loans etc.
Transfers like gifts,
donation etc.
Income on NRI
deposits, loans,
dividends etc.

Foreign Exchange Market

To convert Rupee into foreign currency or vise-versa, exchange rate is involved. The
market, which deals with exchange rate mechanism for conversion of currencies, is called
Foreign Exchange Market (FOREX).
There is no physical Forex market like the Stock Exchange, but its participants and
players determine it.
Participants purchase and sell foreign currency for the various transactions, which
affect the demand/supply of FCY and Rupee. This demand and supply determines to
some extent the exchange rate.
Factors determining the Exchange Rate of a currency

Following factors determine the exchange rate of a currency vis--vis another currency.

Balance of Payments
Local Interest Rates
Monetary Policy
 Exchange Control Regulations
Inflation
Central Bank Intervention
Speculation
Demand / Supply of a currency
Players in FOREX Market

Following are the players in a FOREX market.

Participants purchasing and selling foreign currency for the various purposes
Commercial banks, Merchant banks, Investment Banks, Co-op Banks, Merchants,
Moneychangers, tourist, etc.
RBI purchase and sell foreign currency to control demand/supply of FCY/ Rupee, to
control rupee value compared to other currencies and for foreign currency reserves.

The Exchange rate in a Forex market is quoted for the following four types of transactions:
- For Purchase of foreign currency cash the rate quoted is called as TT Buying rate
- For Sale of foreign currency cash the rate quoted is called TT Selling Rate
- Rate quoted for Negotiation of an Export Bill is called Bill Buying Rate
- Rate quoted for Negotiation of an Import Bill is called Bill Selling Rate
* cash does not mean only hard currency, but also amount to be remitted out / received by
way of a Telegraphic Transfer.

TT Buying rate Bill Buying rate
Quoted when a bank Quoted when a bank
pays rupee equivalent to negotiates an export bill
a customer after getting and there is no cash
FCY from him transaction taking place
immediately, but cash will
be received at a later date.
TT Selling rate Bill Selling rate
Quoted when a bank This is opposite of Bill
pays FCY to a customer Buying where
after getting equivalent payment is made for
rupees from him import bills.

Types of transactions Types of transactions Types of transactions Types of transactions

Clean inward Purchase/discount Outward Transactions
remittance of bills and other remittance in involving
Conversion of instruments foreign currency transfer of
proceeds of (TT/MT/ PO, proceeds of
export bill DD) import bills.
realized. Cancellation of
Cancellation of forward
outward TT, contracts
DD, MT, PO Bill purchased
returned unpaid
Bill purchased
transferred to
collection
account

Types of Exchange Rates

Following are the different types of Exchange Rates

Cash Rate
A Cash transaction is the one in which delivery of foreign exchange takes place immediately.
I.e. if you have USD with you and go to a bank for conversion into INR, the bank will
convert FCY at a rate and give you INR immediately. The transaction as well as settlement is
complete immediately on the same day. Such types of transactions are called as cash
transaction and the rate quoted is called as cash rate.
TOM Rate
A TOM transaction is the one in which delivery of foreign exchange takes place the next day.
i.e. If you expect to get USD tomorrow, you may book a rate today and give USD to bank
tomorrow. The Bank will give you INR tomorrow. This means that you have done the
transaction today, but the settlement is done the next day. Such types of transactions are
called as TOM transactions and the rate quoted is called as TOM rate.
Spot Rate
A Spot transaction is the one in which delivery of foreign exchange takes place the third
working day. i.e. If today is 11th June and you expect to get USD on 14th June, you may
book a rate today and give USD to bank on the 14th. The Bank will give you INR on the
14th. This means that you have done the transaction today, but the settlement is done the
third working day. Such types of transactions are called as spot transactions and the rate
quoted is called as the spot rate.
Forward Rate
A Forward transaction is the one in which delivery of foreign exchange takes place at a
future date, which is greater than the third working day.

Deal Date Value Date

Cash Rate Today Today
Tom Rate Today Tomorrow
Spot Rate Today Third working day
Forward Rate Today Any day after the third
working day
How are Forward rates calculated?
Forward Rates are calculated based on the following formula:
Forward Rate = Spot Rate +/- Margin
If Forward rate is more than Spot rate, then the local currency is quoting at a premium
If Forward rate is less than Spot rate, then the local currency is quoting at a discount
Eg: If today is 15 June and the spot rate of today is 49. You want a forward rate as of 15 July.
The bank gives you 49.50. As the forward is more than the spot, rupee is quoting at a
premium. The premium is 49.50 49.00 = 0.50. Thus the premium is 50 paise.
Eg: If today is 15 June and the spot rate of today is 49. You want a forward rate as of 15 July.
The bank gives you 48.75. As the forward is less than the spot, rupee is quoting at a discount.
The discount is 48.75 49.00 = -0.25. Thus the discount is 25 paisa.
How are Premium / Discount quoted?
Whether there is a premium or a discount depends upon the Interest rate difference between
two countries to which the currency relates.
Eg India USA
Interest Rate 10% p.a. 5% p.a.
Difference 5%p.a.
Since USA interest rate is lower than that of the India INR is quoted at premium of 5% p.a.
i.e. 42paise (0.05/12).
Lower the interest rate higher is the premium quoted.
Premium means that the FCY quoted will be more expensive and so a seller will have to
pay more of his own currency. The quoted margin should be added to the spot rate to get
the forward rate.
Discount means that the FCY quoted will be cheaper and so a seller will get less of his
own currency. The quoted margin should be deducted to the spot rate.
Par, which means there will be no change.
Forward Contract
Suppose you export today on 15 June. Your buyer is expected to pay USD on 15 July. The forward rate as
on 15 July is 49.50. However, you do not book a forward rate and the spot rate becomes 40
on 15 July. Your buyer pays you and your bank converts at 49 because you did not book a
forward rate on 15 June. You lose 50 paise. If you had booked a forward rate, you would
have got 49.50 and could have hedged the exchange rate risk. This booking of a forward rate
is legalized under The Indian Contracts Act and the underlying contract is called as a
Forward Contract.
Forward Contract is thus a hedging tool available to Indian corporate to safeguard against
adverse movement in exchange rates. The rate at which a currency can be bought or sold at
a future date can be fixed today thus effectively fixing the costs of imports or export
receivables due at a future date. It thus renders debtors and creditors free from the risk
arising out of exchange rate fluctuations. Authorised Dealers have been delegated powers to
book forward contracts subject to the following conditions:
1. Forward facility can be extended to resident customers only.
 2. Forward cover can be for genuine transactions only and not for speculative
transactions.
3. AD should satisfy himself that the party for whom the forward cover is being
booked is in fact exposed to exchange risk.
4. While booking a forward contract, ADs should verify the necessary documents to
ensure authenticity of the transaction.
5. The underlying transaction should be firm and not anticipated or speculative in
nature.
6. A customer transaction can be covered in whole or in part. The period and extent to
which cover can be obtained may be left to the customer though the cover should
ordinarily match the maturity of the original transaction.
Option Forward
In a forward contract, the settlement of currencies is at a fixed date in future. In our above
example, if a forward contract is booked as on 15 July, the money should be delivered to the
bank on the 15th. In case the money is not delivered, the contact is cancelled with some
penalties. In an option forward contract a further period, of say 30 days, is given to make the
settlement. I.e. you can deliver the money any time between 15 July to 15 Aug and you will
get the same rate booked by you. This further period is called as an option period and the
contract is called as an option forward contract.
How does GTF book Forward Contracts?
GTF books forward contracts through Standard Chartered bank. Forward Contracts are
applicable usually for prepayments in INR only. In case it is required to book a forward
contract, following will be done:
- The forward rate as on the due date of the invoice will be booked and the invoice
value will be converted at that rate.
- The forward contract will be booked with an option forward of 30 more days. This
is done to avoid cancellation of the contract in case the money is not received on
due date.
- If the money is received in our account by the option forward date, the forward rate
will be used to convert the received amount.
- If the money is not received in our account by the option forward date, (i.e. by the
30th day after the due date), the forward contract is crystallized and the money will
 then be converted at the days spot rate. In such case, all exchange rate gains / losses
/ cancellation charges will have to be borne by the seller.
- In case the money is received before the due date, corresponding premium (excess
premium from the date of receipt of funds till the due date) will be deducted.

Invoice Shipping Due Option Forward

Date Date Date Date

30 Days
All incidental charges including stamp duty, if any, for booking and cancellation of forward
contracts will have to be borne by the seller.
Examples of Forward Rate
There can be three situations:
Money comes on the due date
Money comes after the expiry of the contract period
Money comes before the due date
Money comes on the due date:
Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the
invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You
get the following rates:
30 Days

Invoice Due Option Forward

Date Date Date

5 July 5 Aug 5 Sep

Spot Rate Fwd Rate

49 49.50

If the money comes to you on the due date i.e. 5 Aug or any time between 5 Aug to 5 Sep, the bank will give
you 49.50.
Money comes after the option forward period:
Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the invoice is 5 Aug.
You take a forward rate as on 5 Aug with an option forward till 5 Sep. You get the following rates:
30 Days

Invoice Due Option Fwd Money

Date Date Date Recd

5 July 5 Aug 5 Sep 15 Sep

Spot Rate Fwd Rate Spot Rate

49 49.50 49.80

If the money comes to you on, say, 15 Sep. The bank will cancel the forward contract on 5
Sep and will levy penal charges as follows:
Penal Charges = (Spot Rate as on 5 Sep Fwd Rate taken as on 5 Sep)
= 0.30 on the full invoice value.
The penal charges are levied because the money has not been received on option forward the
due date and the bank has to borrow money from the market to crystallize its commitment.
Money comes before the due date:
Suppose you have an invoice of USD 100 with you today on 5 July. The due date of the
invoice is 5 Aug. You take a forward rate as on 5 Aug with an option forward till 5 Sep. You
get the following rates:
30 Days

Invoice Due Option Fwd

Date Date Date
5 July 1 Aug 5 Aug 5 Sep

Spot Rate Fwd Rate Fwd Rate

49 49.25 49.50

If the money comes to you on, say, 1 Aug. The bank will now charge the actual premium
from 5 July to 1 August and will convert at 49.25. The customer will not get 49.50. In other
words, the bank will calculate the fwd premium from 1 Aug to 5 Aug, which is , say, 0.25.
This is the excess premium and will be deducted from the actual forward rate booked. i.e.
49.50 0.25 = 49.25 will be charged.

Nostro / Vostro Accounts

Nostro Account
When you deal in foreign currency, the currency is required to be held in the country to
which it belongs. This means that you cannot keep USD in a bank in India. USD is a local
currency of United States of America and hence the USD should be kept in USA. Therefore
if any bank in India wants to deal with, say, USD, the Indian bank will have to open a current
account with a bank in USA, and deposit USD there. The Indian bank then can use the USD
deposited in the current account of the US Bank and make transactions. This current account
opened by an Indian Bank is called as a Nostro Account.
Definition
A foreign currency account maintained by a bank in India with a foreign bank in a foreign
country in its currency is called as a Nostro Account. (Our Account with You, in your
currency in your country.)
Eg State Bank of India, Mumbai branch opening a USD current account with Chase

Manhattan Bank, New York branch is called a USD Nostro Account.

Eg Punjab National Bank, Mumbai branch opening a GBP current account with Barclays

Bank, London branch is called a GBP Nostro Account.

As you may understand that a USD account cannot be opened in London as USD is not the
local currency of UK.
Vostro Account
An INR Account opened by a foreign bank with an Indian bank in India is called as a Vostro
Account. (Your Account with Us in our currency in our country).
Eg Chase Manhattan Bank, New York branch opening a INR current account with State
Bank of India, Mumbai branch is called a INR Vostro Account.
LIBOR
LIBR stands for London Interbank Offered Rate. It is a benchmark giving an indication of
the average rate at which a leading bank can obtain unsecured funding in the London
interbank market for a given period, in a given currency. It therefore represents the lowest
real-world cost of unsecured funding in the London market. It is produced for ten currencies
with 15 maturities quoted for each - ranging from overnight to 12 months - thus producing
150 rates each business day.
E.g.: - If you want to borrow, say, USD 1M from Standard Chartered London, they will
quote you LIBOR + 2% (say).
[Nostro Account opened by Indian bank at foreign center in foreign currency
Vostro Account opened by foreign bank in India in Indian Rupee.]

Foreign Exchange Management in India

Foreign exchange management comes under the jurisdiction of Ministry of Finance (MOF)
M.O.F. operates in the market through the following three institutions:
1. RBI
2. Customs
3. Enforcement Directorate
Until 31st May 2002, all foreign exchange management in India was governed by Foreign
Exchange Regulation Act 1973 (FERA). On 1st June 2002, FERA was replaced by Foreign
Exchange Management Act 1999 (FEMA).
Following are 4 points of difference between FERA and FEMA
FERA FEMA
Objective was to conserve foreign Objective is to manage foreign exchange
exchange
Under FERA offense was punishable Under FEMA offense is compoundable
Under FEMA burden of proof was on Under FEMA burden of proof is on
accused Enforcement department
NRI was not acceptable as per IT act NRI is acceptable as per IT act as well as
defined by FEMA

[According to IT act NRI is a person who is outside India for more than 182 days out of 365 days of
previous financial year for any employment or financial gain]
Under FERA/FEMA M.O.F. has instructed RBI to do foreign exchange management? RBI
has delegated powers to Authorised Persons i.e. Authorised Dealers and Authorized
Moneychangers.
Authorised Dealers
Authorised Dealers (ADs) are those entities which are authorized by The Reserve Bank of
India to deal in Foreign Currency. They are usually Banks, but can be companies like
Thomas Cook, or even us.
Authorised Moneychangers
In order to provide facilities for encashment of foreign currency to visitors from abroad i.e.
foreign tourist, RBI has granted license to certain established firms, hotels and other
organizations permitting them to deal in foreign currency notes, coins & travelers cheques.
These are of two types:
1. Fully Fledged Moneychangers They are authorized to undertake both purchase and
sell transaction with public.
 2. Restricted Moneychangers They are authorized only to purchase foreign currency
i.e. notes coins and travelers cheque. These purchases/ collections has to be
surrendered to an Authorized dealer/ Full Fledged Moneychangers.
Following three institutes plays important role in Foreign Exchange Management
2.I. FEDAI Foreign Exchange Dealers Association in India

It is a bankers association licensed by RBI to deal in foreign exchange

It is an advisory body to RBI.
All rules governing Import- Export foreign exchange management is decided by
FEDAI. i.e RBI gives guidelines while FEDAI decides rules.
All the operational issues are discussed during association meet and put up to
RBI.
It conducts educational training programs for bank officers.
2.II. ICC International Chamber of Commerce
ICC was established in 1999 and its office is based in Paris
It aims at standardizing rules governing operations of Documentary Credits know
as UCPDC.
It works towards trade liberalization based on free and fair competition.
It maintains laison with United Nations.
Enjoys the status of first category consultant with UNO.
ICC has brought all countries at a common platform of understanding on documents.

The UCP 600 has come into effect from July 1, 2007 onwards and UCP 600 has a number of
substantial changes that affect not only how banks will determine compliance, but also how
contracts for sales utilizing Letter of Credits should be written. Some of the new articles in
UCP 600 have adopted practices in International Standard Banking Practices (ISBP) and
followed principles of International Standby Practices (ISP 98), besides providing new
articles in examination, documentation and other aspects for issuing the letters of credits for
banks involved in foreign exchange.
"UCP" is the common reference for the Uniform Customs and Practice for Documentary
Credits. The objective of the UCP is to create a set of contractual rules that would establish
uniformity to conflicting national regulations.
The Uniform Customs and Practices (UCP) for Documentary Credits were first issued in
1933 by the International Chamber of Commerce. The purpose was to overcome conflicting
national laws on letters of credit as well as to bring about uniformity in banking practices.
The rules have been revised a number of times. The recent revision, UCP 600, took more
than three years of consultation and the Consulting Group, which comprised more than 40
representatives from 26 countries proposed changes to the various drafts. During its 24-25
October 2006 meeting, the ICC Commission on Banking Technique and Practice approved
new UCP 600 rules for documentary credits.
UCP 600 vs. UCP 500
UCP 600, which came into effect on July 1, 2007, incorporates a number of changes from the
UCP 500 that was followed by banks for more than a decade till June 2006. These changes
include:
A reduction in the number of articles from 49 to 39

New articles on "Definitions" and "Interpretations" providing more clarity and

precision in the rules
A definitive description of negotiation as "purchase" of drafts of documents
The replacement of the phrase "reasonable time" for acceptance or refusal of
documents by a maximum period of five banking days
New provisions allow for the discounting of deferred payment credits
Banks can now accept an insurance document that contains reference to any exclusion
clause
Some of the important changes in UCP 600 and their implication for banks in handling letter
of credit transactions are highlighted below:
UCP 600 does not apply by default to letters of credit issued after July 1st 2007. A statement
needs to be incorporated into the credit (LC), and preferably also into the sales contract that
expressly states it is subject to these rules. Article 1 of UCP 600 also leaves open the
possibility for either party to exclude the application of any part of UCP 600 as long as the
exclusion is stipulated in the credit.
Following 3 documents of ICC are statutory requirement in India
(a) UCPDC 500 Uniform customs and practice for documentary credit. Effective
from 01-01-1994. All L/Cs are opened as per UCPDC recommendations.
(b) URC 522 Uniform rules for Collection. Effective from 01-01-1996. e.g
Bills sent on collection basis.
(c) URR 525 [Bank to Bank transactions]. Uniform rules of reimbursement.
Effective from 01-07-1996.
Obligations of an Authorised Dealer
RBI has stipulated various obligations as far as handling and reporting of export documents
as well as dealing in foreign currency is concerned. Some of the important obligations are
highlighted below:
The export documents are to be accompanied by a GR Form. The ADs should number
these forms in running sequence on a calendar year basis. These numbers should be 7
digit number prefixed by the type of finance granted. Eg If Export documents are
 negotiated, the serial should no. will be N0000001, etc. If Export documents are
purchased, the serial should no. will be P0000001, etc.
The export documents should be submitted to the AD within 21 days from the shipment
date. If not, then the exporter should give valid reason for the delay and the AD should be
satisfied with the reason.
If the exporter could not ship the goods declared on the GR, then a short shipment
certificate is to be attached with the GR.
The GR should mention the name of the AD through which the FCY will be received.
The GR form details are to be reported by the AD to RBI on a fortnightly basis. i.e. All
documents handled by the AD in a fortnight (1st to 15th of the month and 16th to last day
of the month) should be reported to the RBI within 7 days from the close of the fortnight.
The AD will release the original GR to RBI only when the full amount declared on the
GR is realized. If not part payment will be reported to RBI. (Full payment means 90% of
the invoice value should be realized. 10% deduction is allowable)
If the buyer pays less due to discount given to the buyer, the same should be declared on
the GR before shipment. Or else the deduction becomes unauthorized.
If any commission is payable to the buyers agent, the same should be declared on the GR
before shipment.
The full FCY value declared on the GR should be realized within 180 days from the
shipment date. If not, then approval for extension in time limit is to be taken from RBI.
Retail Banking Operations

The creation of an institutional structure, usually called the foreign exchange market. This is
a market where one countrys currency can be exchanged for other countries. Contrary to
what the term might suggest, the foreign exchange market actually is not a geographic
location. It is an informal network of telephone, telex, satellite, facsimile, and computer
communications between banks, foreign exchange dealers, arbitrageurs, and speculators. The
market operates simultaneously on three tiers:
1. Individuals and corporations buy and sell foreign exchange through their commercial
banks.
2. Commercial banks trade in foreign exchange with other commercial banks in the same
financial center.
3. Commercial banks trade in foreign exchange with commercial banks in other financial
centers.
The first type of foreign exchange market is called the retail market, and the last two are

known as the interbank market.

We must first understand the organization and dynamics of the foreign exchange market in

order to understand the complex functions of global finance. This chapter explains the roles
of the major participants in the exchange market, describes the spot and forward markets,
discusses theories of exchange rate determination (parity conditions), and examines the roles
of arbitrageurs.
PARTICIPANTS IN THE EXCHANGE MARKET
The foreign exchange market consists of a spot market and a forward market. In the spot
market, foreign currencies are sold and bought for delivery within two business days after
the day of a trade. In the forward market, foreign currencies are sold and bought for future
delivery. There are many types of participants in the foreign exchange market: exporters,
governments, importers, multinational companies (MNC), tourists, commercial banks, and
central banks. But large commercial banks and central banks are the two major participants
in the foreign exchange market. Most foreign exchange transactions take place in the
commercial banking sector.
Commercial Banks
Commercial banks participate in the foreign exchange market as intermediaries for
customers such as MNCs and exporters. These commercial banks also maintain an interbank
market. In other words, they accept deposits of foreign banks and maintain deposits in banks
abroad. Commercial banks play three key roles in international transactions:
1. They operate the payment mechanism.
2. They extend credit.
3. They help to reduce risk.
Operating the payment mechanism
The commercial banking system provides the mechanism by which international payments
can be efficiently made. This mechanism is a collection system through which transfers of
money by drafts, notes, and other means are made internationally. In order to operate an
international payments mechanism, banks maintain deposits in banks abroad and accept
deposits of foreign banks. These accounts are debited and credited when payments are made.
Banks can make international money transfers very quickly and efficiently by using
telegraph, telephone, and computer services.
Extending credit
Commercial banks also provide credit for international transactions and for business activity
within foreign countries. They make loans to those engaged in international trade and foreign
investments on either an unsecured or a secured basis.
Reducing risk
The letter of credit is used as a major means of reducing risk in international transactions. It
is a document issued by a bank at the request of an importer. In the document, the bank
agrees to honor a draft drawn on the importer if the draft accompanies specified documents.
The letter of credit is advantageous for exporters. Exporters sell their goods abroad against
the promise of a bank rather than a commercial firm. Banks are usually larger, better known,
and better credit risks than most business firms. Thus, exporters are almost completely
assured of payment if they meet specific conditions under letters of credit.
RESIDENT FOREIGN CURRENCY (DOMESTIC) ACCOUNT

Resident individuals can open, hold and maintain a foreign currency account i.e. Resident
Foreign Currency (RFC) (Domestic) Account with authorized branches.
OPENING OF ACCOUNTS
Branches authorized to handle foreign exchange business can maintain RFCD Accounts. In
case, request for opening of RFCD Account is received by other branches, the same may be
opened at the nearest authorized branch or at the designated link branch. The Account
Opening Form for opening of Current Account of individuals in rupees is to be used for
opening these Accounts by affixing a stamp RFCD Account.
TYPES OF ACCOUNTS
The Account can be opened in form of Current Account and no interest will be payable on
this account. RFCD accounts at present can be opened in three currencies i.e. Pounds
Sterling, US Dollars and Euro.
JOINT ACCOUNTS
The account can be opened in the name of Residents individuals singly or in joint names
with eligible persons:-
PERMISSIBLE CREDITS
Foreign exchange acquired in the form of currency notes, bank notes and travellers
cheques from the sources specified hereunder:
 a. was acquired by him while on a visit to any place outside India by way of payment for
services not arising from any business in or anything done in India; or
b. was acquired by him, from any person not resident in India and who is
on a visit to India, as honorarium or gift or for services rendered or in settlement of
any lawful obligation;
c. Was acquired by him by way of honorarium or gift while on a visit to
any place outside India.
d. Represents the unspent amount of foreign exchange acquired by him
from an authorised person for travel abroad.
e. As gift from a close relation, as defined in section 6 of the Companies Act, 1957.
f. By way of earning through export of goods/services or as royalty, honorarium or by
any other lawful means.
g. Representing the disinvestment proceeds received by the resident
account holder on conversion of shares held by him to ADRs/GDRs under the
sponsored ADR/GDR Scheme approved by the Foreign Investment Promotion Boards
of Government of India.
h. By way of earnings received as the proceeds of life insurance policy
claims/maturity/surrender values settled in foreign currency from an insurance
company in India permitted to undertake life insurance business by the Insurance
Regulatory and Development Authority.
PERMISSIBLE DEBITS
Debits to the account shall be for the payment towards current/capital account transactions in
accordance with existing regulations under FEMA applicable to resident Individuals.
MINIMUM BALANCE
The RFCD Account may be opened subject to maintenance of minimum balance of
USD1000 or its equivalent, presently. There will be no upper ceiling on balances held in
these accounts.
CHEQUE BOOK FACILITY
Branches shall issue cheque book to RFCD Account holders for making payments for
permitted purposes in terms of existing provisions of Foreign Exchange Management Act
1999. Cheque book facility may be permitted subject to maintenance of minimum balance
of USD 1000 or its equivalent, presently in these accounts. Branches shall issue rupee
cheque book to RFCD account holder by affixing a stamp on top of the cheques RFCD
Account.
LOANS/OVERDRAFTS
No loan/overdraft shall be permissible against balances held in RFCD Accounts.
ACCOUNTING PROCEDURES
The accounting procedure for maintenance of RFCD account shall be the same, which is
applicable to FCNR (B) accounts.
PROCEDURAL GUIDELINES

Funds held in RFCD Accounts can be freely converted into Indian Rupees at the prevailing
TT buying rate. However, these funds are not allowed to be sold
or transferred to accounts of other residents in India. The branches shall report purchase of
currency to the Position Maintaining Offices.
Branches shall make all eligible payments in foreign currency by issuing drafts, traveller
cheques or TT etc. by debiting the RFCD Account with the notional amount.
In case of remittances received in currencies other than the designated currency, the
authorised branches may convert foreign currency into the designated currency for placing
deposit in RFCD account scheme at the risk and cost of the depositor. Branches are advised
to obtain cross rates from the concerned PMO in case of such transactions.
In case, a customer surrenders foreign currency notes for opening of RFCD Account, charges
for issuing drafts in foreign currency by surrendering the currency notes to Full Fledged
Money Changers will be borne by the customer.
Notional rates of foreign currencies advised by International Banking Division through
foreign exchange circulars are to be used for maintaining these accounts.
In case of remittances made in foreign currency where Bank does not earn any exchange
income, charges as applicable in case of EEFC accounts may be recovered from the
customer.
CHANGE OF STATUS
Balances in these accounts may be allowed to be credited to NRE/FCNR (B) account, at the
option /request of the account holders consequent upon change of their residential status
from resident to non-resident.
REPORTING IN WEEKLY STATEMENT OF AFFAIRS
The funds held in these accounts should be shown along with figures of RFC deposits in the
Annexure to the Weekly Statement of Affairs. The deposit figures should not be clubbed
with NRE/FCNR (B) deposits.
RECONCILIATION OF BALANCES
At the end of each quarter, PMOs shall send a statement of RFCD Accounts as per their

records to the concerned branches for reconciliation purposes. The branches upon receiving
the statement shall tally the same as per their records and in case of any
difference/discrepancy, the matter shall be taken up with the concerned PMO.
Whenever there is a change in notional rate of the foreign currency, the balance of RFCD
funds shall immediately be revalued in terms of revised notional rate and the rupee balance
be reconciled with respective PMOs.
Foreign Exchange Derivative Instruments in India

Foreign Exchange Forwards

Authorised Dealers (ADs) (Category-I) are permitted to issue forward contracts to persons
resident in India with crystallized foreign currency/foreign interest rate exposure and based
on past performance/actual import-export turnover, as permitted by the Reserve Bank and to
persons resident outside India with genuine currency exposure to the rupee, as permitted by
the Reserve Bank. The residents in India generally hedge crystallized foreign
currency/foreign interest rate exposure or transform exposure from one currency to another
permitted currency. Residents outside India enter into such contracts to hedge or transform
permitted foreign currency exposure to the rupee, as permitted by the Reserve Bank.
Foreign Currency Rupee Swap
A person resident in India who has a long-term foreign currency or rupee liability is
permitted to enter into such a swap transaction with ADs (Category-I) to hedge or transform
exposure in foreign currency/foreign interest rate to rupee/rupee interest rate.
Foreign Currency Rupee Options
ADs (Category-I) approved by the Reserve Bank and Ads (Category-I) who are not market
makers are allowed to sell foreign currency rupee options to their customers on a back-to-
back basis, provided they have a capital to risk weighted assets ratio (CRAR) of 9 per cent or
above. These options are used by customers who have genuine foreign currency exposures,
as permitted by the Reserve Bank and by ADs (Category-I) for the purpose of hedging
trading books and balance sheet exposures.
Cross-Currency Options
ADs (Category-I) are permitted to issue cross-currency options to a person resident in India
with crystallized foreign currency exposure, as permitted by the Reserve Bank. The clients
use this instrument to hedge or transform foreign currency exposure arising out of current
account transactions. ADs use this instrument to cover the risks arising out of market-making
in foreign currency rupee options as well as cross currency options, as permitted by the
Reserve Bank.
Cross-Currency Swaps
Entities with borrowings in foreign currency under external commercial borrowing (ECB)
are permitted to use cross currency swaps for transformation of and/or hedging foreign
currency and interest rate risks. Use of this product in a structured product not conforming to
the specific purposes is not permitted. Currency derivatives with the rupee as one leg were
introduced with some restrictions in April 1997. Rupee-foreign exchange options were
allowed in July 2003. The foreign exchange derivative products that are now available in
Indian financial markets can be grouped into three broad segments, viz., forwards, options
(foreign currency rupee options and cross currency options) and currency swaps (foreign
currency rupee swaps and cross currency swaps).
ABOUT SWIFT ALLIANCE MESSENGER
Company information
SWIFT is a member-owned cooperative through which the financial world conducts its
business operations with speed, certainty and confidence. More than 10,000 financial
institutions and corporations in 212 countries trust us every day to exchange millions of
standardised financial messages. This activity involves the secure exchange of proprietary
data while ensuring its confidentiality and integrity.
Our role is two-fold. We provide the proprietary communications platform, products and
services that allow our customers to connect and exchange financial information securely
and reliably. We also act as the catalyst that brings the financial community together to work
collaboratively to shape market practice, define standards and consider solutions to issues of
mutual interest.
SWIFT enables its customers to automate and standardise financial transactions, thereby
lowering costs, reducing operational risk and eliminating inefficiencies from their operations.
By using SWIFT customers can also create new business opportunities and revenue streams.
SWIFT has its headquarters in Belgium and has offices in the world's major financial centres
and developing markets. SWIFT provides additional products and associated services
through Arkelis N.V., a wholly owned subsidiary of SWIFT, the assets of which were
acquired from SunGard in 2010. SWIFT does not hold funds nor does it manage accounts on
behalf of customers, nor does it store financial information on an on-going basis.
Governance at SWIFT
SWIFT is a cooperative society under Belgian law and is owned and controlled by its
shareholders. The shareholders elect a Board of 25 independent Directors, which governs the
Company and oversees the management of the Company. The Executive Committee is a
group of full-time employees headed by the Chief Executive Officer.
Board committees
The Board has six committees:
The Audit and Finance Committee (AFC) is the oversight body for the audit process
of SWIFT's operations and related internal controls. It commits to applying best
practice for Audit Committees to ensure best governance and oversight in the
following areas:
o Accounting;
o Financial reporting and control;
o Legal and Regulatory oversight;
o Security;
o Budget, finance and financial long-term planning;
o Responsibility and liability/Code of conduct; and
o Audit oversight.
The AFC meets at least four times per year with CEO, CIO, CFO, General Counsel and
Chief Auditor, or their pre-approved delegates.
The Committee may request presence of any member of SWIFT staff at its discretion.
External auditors are present when their annual statements/opinions are discussed and when
the Committee deems appropriate.
SWIFT History
2012 SWIFT embraces change
SWIFT appointed as supplier for Target2 Securities. Sanctions Screening launched.
Milestone of 20 million messages is reached on 31 May. SWIFT welcomes its first
ever board member from China. Gottfried Leibbrandt, Head of Marketing succeeds
212 countries YTD | Lzaro Campos as CEO of SWIFT on 1 July. Sibos is held in Osaka.
1,139 billion messages
YTD
2011 A stronger and more innovative SWIFT
Launch of SWIFTRemit, the first truly global platform for person-to-person
payments solution providing cost-efficient framework and consistent service
quality. SWIFT launches SWIFTRef, a family of products that aims to eliminate
10,118 live users | 210 costly payment errors arising from bad data, and increase straight-through-
countries | 4,431 billion processing. Launch of SWIFT Index, a new global economic barometer that can act
messages as an advance indicator of Gross Domestic Product (GDP). Five new market
infrastructures in Latin America join SWIFT. Innotribe Mumbai, 200 delegates
explored the specific issue of the future of mobile banking for the unbanked.
Construction of OPC CH started. The FIN Renewal programme is progressing to
schedule with the communications infrastructure completed in 2011. SWIFT is
awarded the Solidaritest Award for Business in recognition of SWIFTs social
initiatives. India and Korea, 20 years on SWIFT. SWIFT increases impetus behind
Go Local initiatives. Sibos is held in Toronto.
2010 First acquisition in SWIFT history
SWIFT acquires Sungards AMH business named Arkelis, which extends SWIFTs
portfolio in high-end messaging and services. 30,000 laptops deployed to date in
collaboration with One Laptop Per Child (OLPC). Kick off of SWIFT2015
9,705 live users | 209 strategy. 3SKey is introduced to help corporate treasurers manage all their banking
countries | 4,032 billion relationships with a single, multi-network personal digital identity. SWIFT
FIN messages publishes ISO 20022 for Dummies, more than 15,000 copies are distributed by
the end of 2010. ISO 15022 message standards are certified as Sharia-compliant for
Islamic Finance. 30 years anniversary of SWIFT in Hong Kong, Japan and
Singapore. Acquired: Biggest ever Sibos: 8,900 attendees in Amsterdam.
 2009 Efficiency is paramount
SWIFT opens Seoul office. Launch of Innotribe to enable collaborative innovation
in financial services. 400 organisations order Alliance Lite. SWIFT works directly
with customers and partners such as Bloomberg to develop new products and
9,281 live users | 209 services. Launch of Standards Developer Kit, which makes it cheaper and more
countries | 3,76 billion efficient to build and maintain standards implementation for both ISO 20022 and
FIN messages MT messages. Sibos is held in Hong Kong.
2008 A smarter and simpler SWIFT
Distributed Architecture programme completes Phase One successfully. Launch of
Alliance Lite, a complete solution giving rapid access to the SWIFT network.
Launch of Alliance Integrator, a new product that reduces the effort for customers
8,830 live users | 209 moving additional business flows onto SWIFT and reduces the work involved in
countries | 3,855 billion implementing the yearly standards release. SWIFT records two peaks in the same
FIN messages week in the message traffic 16,327,668 messages on Wednesday 23 January and
16,550,075 messages on Friday 25 January: a first in SWIFT history. First live
SEPA (Single Euro Payments Area) Credit Transfers is sent from major European
banks over SWIFTNet on 28 January 2008. SWIFT celebrates its 35th anniversary.
Sibos is held in Vienna.

SWIFT offices
 SCOPE OF STUDY:-

The Principle of an autonomous monetary policy, a control over the exchange rate and
free capital movements cannot be achieved simultaneously.
Today, majorly transactions of Foreign Exchange have wider area than previous days
by which trade between countries takes place.
The study will assist to understand the foreign exchange operations easy and
effectively to reader.
This shows the Indian system of Forex transactions by exporters and importers
Foreign exchange day-trading has good liquidity. The Forex currency exchange
market is the biggest financial market around the globe today.
Traders can choose their most feasible time to do trading business with Forex day-
trading, as it is a 24/7 market. The high liquidity of Forex is combined with a real 24-
hour market.
In the Forex market, there are no limitations to sell currencies short, not like in stocks,
which have to be sold, at short currencies, on an upscale.
IT is evidently to the interest of mankind that made the trade between different
countries easily, presently universally banks are using software named as SWIFT
ALLIANCE MESSENGER helping to send and receive the foreign trade
transactions.
To raise the value of the national exchange for the sake
of improving the terms of trade.
 Objective(s) of the study:-

To know about the how Indian government role in growing trade exchange and
in money transfer schemes.
What are the roles of banks in managing the business of foreign exchange?
What are the factors affecting the countrys exports and imports?
Why Indian government is closely concerned with the foreign exchange and
trade transactions?
What are the laws relating to regulate the foreign trade business?
What are the risks in trade and in exchange of payments/amount remitted by
N.R.I in favour of person living in India?
What are reasons to make KNOW YOUR CUSTOMERS norms important in
trading?
 RESEARCH METHODOLOGY

This study is an explanatory research into the foreign exchange operations with respect to the
various kinds of services provided by the different financial institutions under the
guidance/instructions of the RESERVE BANK OF INDIA. The behavior of different users of
Forex services is viewed in the Indian context. The Indian foreign exchange market is
developing very fast along with the modern management lines and the importance of the
investment and satisfaction of his desires as the ultimate move of trade transactions is being
realized by more and more business firms engaged in import and export, merchant trade,
currency transactions services, treasury services along with the foreign institutional
investment opportunities. Globally, the importers and exporters in turn, are becoming more
and more aware of the exchange market in which he undertakes the purchasing and selling of
goods. To stop the speculation, black-money flow and corrupt practices are on the target of
RESERVE BANK OF INDIA by implementing the checks of FOREIGN EXCHANGE
MANAGEMENT ACT, 1999 are increasing significant concern as with business institutions
knowledge for good trade practices and improvement in countries economy, are becoming
more and shrewder. The present study is to study the FORIGN EXCHANGE OPERATIONS
with special reference to the Importers, Exporters, dealings in treasury operations, money
remittances under the jurisdiction/ operations of PUNJAB NATIONAL BANK. (A number
of dimensions namely the basis of educational background, age, occupation, marital status,
income etc.)
 HYPOTHESIS

The truth in any field can be established by scientific research which involves the number
of steps and the time devoted by researcher to do justice with their own practices.
Formulation of hypothesis is one of the important steps in scientific research
methodology.
A hypothesis can be defined as a proposition which can be put to test to determine validity.
The study is concerned with the factors that influence the operations involves in the
foreign exchange. It is widely believed that in foreign exchange operations number of
factors depends upon the geographical differentiation, demographical behaviour of
importing and exporting nations and demand in the different nations and also the foreign
exchange policy of that country plays an important role in exchange dealings/processes.
The proposed study is aimed at verifying these impressions. To operationally the study
the following hypothesis were formulated to be tested through the questionnaire and
personal interviews:-
1) There is a difference in the nature and demand of Foreign Trade Market Business:-
There is a geographical difference between the countries and in the trends and their
culture i.e. views it is differently.
2) Difference exists in the investment and product selection by both Importers and
Exporters country.
3) There exists difference w.r.t. Choice of different trade tariffs applied by Indian
Government in the different parts of country:
Factors like income and suitability while making investment.
Impact on income Tax. (As some only purchase to avert tax.)
Influence of portfolio services providers.
4) There exist economic status differences in the behavior of natives of country.
 Methodology

Methods of Data Collection:-

Every Projects successfulness and significance is based on the material gather by the
researcher from the different reliable resources and by proper using of the data gathering
tools and techniques.
DATA:-

Data is the basic unit in statistical studies. Statistical information like census, population
variables, health statistics, and road accidents records are all developed from data. Data is a
collection of facts, figures such as values or measurements. It can be numbers, words,
measurements, observations or even just descriptions of things.
Data can be defined as the quantitative or qualitative values of a variable. Data is thought to
be the lowest unit of information from which other measurements and analysis can be done.
Data in itself cannot be understood and to get information from the data one must interpret it
into meaningful information. There are various methods of interpreting data. Data sources
are broadly classified into primary and secondary data. Data is one of the most important and
vital aspect of any research studies. Researches conducted in different fields of study can be
different in methodology but every research is based on data which is analyzed and
interpreted to get information.
Types of data:-

Primary Data:-
Data that has been collected from first-hand-experience is known as primary data. Primary
data has not been published yet and is more reliable, authentic and objective. Primary data
has not been changed or altered by human beings; therefore its validity is greater than
secondary data. In the words of WESSEL, Data originally collected in the process of
investigation are known as primary data. The concerned investigator is the first person who
collects the information. The primary therefore, first hand information.
Secondary Data:-
Secondary data are those which are already in existence, and which have been collected for
some other purpose than the answering of the question in hand. The review of literature in
nay research is based on secondary data, mostly from books, journals and periodicals.
According to WESSEL, Data collected by other persons are called secondary data . These
data are therefore, called second hand data. Obviously since these data are already been
collected by somebody else, these are available in the form of published or unpublished
reports.

The data gather in this project is based on both Primary sources and Secondary Sources of
Information the data analysis is based on the primary or firsthand information gathers from
various Banks, Private Money Transfers and Importer and Exporter. All the other is collected
from the books, websites and brochures given by the bank on the services they are providing
to their customers.
 Limitations
In this report an attempt has been made to understand the concept of Forex operations in

dealing room and scrutinize about the various complexity of procedures they followed for

the flow of work between handling the transactions made by PNB bank on the behalf of their

potential customers. The problem rises then, when gap occurs in the paper work done by

both importers and exporters i.e. Letter of credit Bill of Lading, Invoice, Packing list, G.R.E

Certificate, and other information provided by the customer or authorised branch to

CENETRELISED BANK OF TRADE & FINANCE is not matching and sometimes also

at the time of the realization of the payment by both in the favour of importer and exporter or

vice-versa whether bank is debiting or crediting the amount made by the parties.

The governments foreign trade policy is also plays crucial role in incumbent for

exports and the deposits made by N.R.Is and N.R.Es in whether in NOSTRO-VOSTRO

account. Today all of banking operations based on the technology, but there is also very huge

risk of data and information loss or theft, they should have is properly contained or not,

because many times it is seen that hackers hacked the data and sites of the institutions. Due

to which organizations fails to meet with their clients need. It is general quote that risk is

everywhere but with the time some discrepancies can be removing. RISK is the entire factor

for PROFIT. If organization is able to overcome the problems no, there is success at every

step.
 Analysis & Interpretation

Every research project always basis a strong cause of problem which give out the excellent
results from the existing research by implementing the proper techniques and tools of data
interpretation always the need of good research work. The above research projects data is
based on the secondary data which given by the Organization (Punjab National Bank), the
brochures and the also the some of the copies of system originated documents as a specimen
copies.
The data resulted that the Punjab National Bank is one the leading industry in foreign
exchange services they are providing the customer satisfying services. Operationally work of
Punjab National Bank is very strong as according to the other banks. Their exchange
procedure is so simple. Globally, banking following the SWIFT software as a whole in
which they send and receives the message of receipt and payments of import and export. The
internal operations are very strongly applicable to K.Y.C norms as well as for the source of
funds. The bank maintained the standardised format according to their software FINCALE
which is characterized by the complete solutions for banking industry. Banks also have
flexibility to their regular and potential customers who have strong businesses and deposit
with the bank.
All the banks follow the R.B.I guidelines in foreign exchange and also in foreign
trade. The import and exports of goods takes places under the FEMA guidelines which are
mandatory to importers and exporters.
Que: - 1 Are you aware about the Commercial banks/ Indian Govt. undertaking banks?

Interpretation: - As In India Banking Industry are on very strong position, Undoubtly people of the country
are very much aware about the banking operations by which they are fulfilling their
personal as well as business.

Que: - 2. Are you Exporter / Importer of the goods?

Interpretation: - All we know in India Exports are more than Imports, Business Houses has been successful
in creating their image on international front. In context this exporters engages more in
export services. On other hand, importers imports that material which easily and cheaply
available from international market. Left, respondent deals in domestic market.
Que: -3 In which country you deal for Products/ Services and Technology Transfer?

Interpretation: - Today India is one of the strongest economy in world and trade practices of India are more
with the Europe then with Singapore, U.A.E, China and with other continenst.

Que: -4 You have any Letter of Credit with Your Bank for Foreign Trade Services?

Interpretation: - Letter of credit is more crucial tool in Foreign Trade for fund exchange. 56% business
persons deals with foreign Importer and Exporter with the Letter of Credit.
Que: - 5 Which Indian banks you prefer for your business transactions?

Interpretation: - Indian Banks are very much involved in the foreign exchange operations, especially the
participation of government banks. Also the foreign banks are very active participants in
the foreign exchange business. In above graph PNB bank is leader among other banks i.e.
are Bank of Baroda, Bank of India and the Hdfc bank.

Que: -6 What is mode of the transport you use for Import/ Export?

Interpretation: - Transportation of goods in foreign trade and % of transshipment by waterways is more

than airways slightly. Both are very much crucial transport modes in trade.
Que: - 7 Which companys software you use for Money Transfer?

Interpretation: - For the Foreign Exchange transactions above companies are the key player in the currency
exchange or conversion. U.A.E exchange is less like in among dealers; Money gram is less
preference than Western Union Money transfer which is leading player in this area.

Que: - 8 Which Company Charges more commission on Money Transfer?

Interpretation: - In the money transfer business commission charged by companies Westren Union Money
Transfer is ahead in highly commission charges from their customers, as compares to
other two companies.
Que: - 9 From which areas people deals most in Money Transfer?

Interpretation: - Transactions in Semi-urban area are more than urban and rural areas.

Que: - 10 Are you satisfied with the services of private money transferees?

Interpretation: - Most of the people are satisfied with the services in their areas provided by the private
money transferees. Only small proportions of people are not satisfied with their services. People say that
private service providers charge more than the banks.
Que: - 11 From which area your received the most order regarding Import /Export?

Interpretation: - In Export and Import business most of the orders from the urban areas because of full
awareness and the lots business opportunities. Rural is least in both Import & Export.

Que: - 12 Are the Importer / Exporter uses the Letter of Credit?

Interpretation: - Letter of Credit is most reliable Source of fund transfer between the Importers and
Exporters. So, that most of the Exporters and Importers prefer the Letter of credit.
 Recommendations / Suggestions
1. Indian Government should take special recommendations to boost the exports as in Indian
context to increase their foreign currencies reserves.
2. To enter in the international trade both importer and exporter should be known to the
foreign trade market in which they are dealing.
3. Indian Ministry of trade and commerce should be more concerned for own exporters to
promote their business in foreign countries.
4. There should me more flexibility of operations to take deposits from N.R.Is and N.R.Es.
5. Under the Guidelines of RESERVE BANK OF INDIA Risk Management Committees in
every financial institution to review the different types of risk in their organization.
6. Free Trade Agreements (FTAs) are an important element of trade strategy sought to
enhance our presence in new and emerging markets to increase our market share.
7. Encourage domestic manufacturing for inputs to export industry and reduce the
dependence on imports.
8. Promote technological Up-gradation of exports to retain a competitive edge in global

markets.
9. Persist with a Strong market diversification strategy to hedge the risks against global
uncertainty.
10. Provide incentives for manufacturing of green goods recognizing the imperative of
building capacities for environmental sustainability
 Conclusion

Every operation of banking industry regulates by bankers of bank i.e. is R.B.I applied
liberalized approach for issuing the licences to banks and other institutions to act as
Authorised Dealers in the foreign exchange market to provide services to the business
houses, various money transfer companies working at international level. In keeping with the
move towards liberalisation, the Reserve Bank has undertaken substantial elimination of
licensing, quantitative restrictions and other regulatory and discretionary controls by
implementing the FEMA, 1999 checks and the checking of the documents on the port by
Custom departmrnts. Reserve Bank has also provided the exchange facility for liberalised
travel abroad for purposes, such as, conducting business, attending international conferences,
undertaking technical study tours, setting up joint ventures abroad, negotiating foreign
collaboration, pursuing higher studies and training, and also for medical treatment. From the
above research it concludes that OPERATIVE FUNCTIONS of Punjab National Bank is very
efficiently working as compare to other Indian banks.
 References / Bibliography:-

Books:-

A. VARSHNEY, P.N, 2007, BANKING LAW AND PRACTICE, SULTAN CHAND & SONS, NEW
DELHI. CHAPTER-19 Letter Of Credit.
B. PAIN, PARDIP K, 2010, INTERNATIONAL BANKING, MACMILLAN PUB. INDIA LTD, NEW
DELHI.

Journals:-

http://cscjournals.org/csc/manuscript/Journals/IJBRM/volume3/Issue1/IJBRM-64.pdf

Websites:-
http://www.rbi.org.in/scripts/PublicationsView.aspx?id=12252#CON

http://www.worldscibooks.com/economics/8052.html

http://dgft.gov.in/exim/2000/policy/ftpplcontentE1213.pdf

http://dgft.gov.in/exim/2000/Mspeech1213E.pdf
ANNXEURE
 Specimen: - Letter of credit
___________ _____________________________
Swift Input
Sender Bank: - PUNJAB NATIONAL BANK
Lajpat Nagar, New Delhi

Receiver Bank: - Bank Of America

New York.
_________________________________________
27: Sequence of total
1/1
40 A: Form of Document Credit
Irrevocable
20: Documentary Credit number
1496FLC00037/12
31C: Date of issue
120515
40E: Applicable rules
UCP LATEST VERSION
31D: Date & Place of Expiry
120617 CHINA
50: Applicant
Force Polymers Pvt. Ltd.
10th km stone, Hardwar-Delhi road,
Bahadrabad, Hardwar, Inida
59: Beneficiary name & address
XFLP CHEMICAL CO. LTD.
ROOM B701-705, HUAQIAO YINZUO
BUILDING, 1 NORTH DAQIAO ROAD
PUKOU DISTRICT, NANJING CHINA
32B: Currency code, Amount
Currency : USD (US Dollor)
Amount #33, 040. #
41A: Available with BY-FI BIC
ABOCCNBJ100
AGRICULTURE BANK OF CHINA, THE
(JIANGSU BRANCH)
NANJING CN
BY NEGOTIATION
42C: DRAFTS AT
AT DAYS FROM BILL OF LADING
DATE BEING 100 PCT DRAWN
42D: DRAWEE NAME & ADDRESS
PUNJAB NATIONAL BANK
BRANCH AHMEDPUR HARDWAR,
INDIA.
43P: Partial Shipment
NOT ALLOWED
43T: Transshipment
ALLOWED
44E: Port of Loading/airport of dep.
Any port of china
44F: Port of discharge / airport of dep.
NIHAVA SHEVA PORT, INDIA.
44C: Latest date of Shipment
12/05/27
45A: Description of goods &/or Services
 covering shipment of CRUDE OIL 30000 Lt. (300 DRUMS OF 100
LT. EACH) AND AS PER PERFORMA ONVOICE NO.
FGHLJN20120510P DATED 10.05.2012.
Terms CIF NHAVA SHEVA, INDIA.
46A: DOCUMENTS REQUIRED
1. FULL SET 3/3 ORIGINAL SHIPPED ON BOARD OCEAN
SHIPPING COMPANYS BILL OF LADING TO ORDER BANK ENDORSE OR MADE OUT TO
ORDER OF PUNJAB NATIONAL BANK, BRANCH AHMEDPUR HARDWAR, INDIA.
MARKED FREIGHT PREPAID AND NOTIFY THE APPLICANT.
2. SIGNED COMMERCIAL INVOICE(s) IN THREE COPIES QUOTING THE GOODS SUPPLIED
ARE OF CHINA ORIGIN AS PER PURCHASE ORDER OF THE APPLICANT BEARING NO.
FPL/PUR/0145/12-13 DTAED 08.05.2012. MATERIALS ARE FREELY IMPORTABLE ASPER
INDIAS FOREIGN TRADE POLICY 2009-2014.
3. PACKING LIST IN 06 COPIES.
4.ONE COMPLETE SET OF NON NEGOTIABLE DOCUMENTS TO BE SENT TO APPLICANT WITH
INVOICE,PACKING LIST, BL/AIRWAY BILL,CERTIFICATE OF ORIGIN VIA FAX OR COURIER
WITHIN 07 WORKING DAYS FROM THE DATE OF SHIPMENT. BENEFICIARY CERTIFICATE TO
THIS EFFECT MUST ACCOMPANY THE ORIGINAL DOCUMENTS.
5. INSURANCE IS COVERED BY THE APPLICANT IN INDIA PARTICULARS OF SHIPMENT FOR
INSURANCE PURPOSE TO BE SENT TO APPLICANT QUOTING THEIR COVER NOTE/POLICY
NO.0830000748 OF TATA AIG GENERAL INSURANCE COMPNAY LTD.THROUGH FAX/EMAIL.
PROOF OF COPY OF FAX/MAIL IS TO ACCOMPANY THE DOCUMENTS.
6.IN CASE SHIPMENT BY SEA - CERTIFICATE FROM SHIPPING COMPANY OR THEIR AGENT TO
THE EFFECT THAT THE CARRYING VESSEL IS REGULAR LINEER, SEA WORTHY AND NOT
MORE THAN 20 YEARS OLD.
7. IN CASE SHIPMENT BY SEA - HEALTH CERTIFICATE ISSUED BY
GOVERNMENT OF HONGKONG AND CERTIFIED BY VETERINARY DOCTOR.
F47A: Additional Conditions
1.ORIGINAL DOCUMENTS TO BE SENT TO US IN ONE SETS BY DHL, BY REGISTERED
AIRMAIL AT PUNJAB NATIONAL BANK INTERNATIONAL BANKING BRANCH, 8TH FLOOR,
DCM BUILDING, 16, BARAKHAMBA ROAD, NEW DELHI- 110001,INDIA.
2.ALL DOCUMENTS SHOULD BE IN ENGLISH OR ACCOMPANIED BY ENGLISH TRANSLATION.
3.DOCUMENTS OF FOLLOWING NATURE ARE NOT ACCEPTABLE:
IN CASE OF AIR SHIPMENT -
A.AIR CONSIGNMENT NOTE ISSUED BY FREIGHT FORWARDER.
B.AIR WAY BILL ISSUED PRIOR TO DATE OF CREDIT.
C.THIRD PARTY AIRWAY BILL.
D.HOUSE AIRWAY BILL.
IN CASE OF SEA SHIPMENT -
A.SHORT FORM BILL OF LADING/BLANK BACK BILL OF LADING.
B.BILL OF LADING ISSUED PRIOR TO DATE OF CREDIT.
C.THIRD PARTY BILL OF LADING.
D.CONTAINING A PROVISION THAT GOODS CAN BE CARRIED ON DECK.
E.CHARTER PARTY BILL OF LADING.
F.CONTAINING THE INDICATION INTENDED OR SIMILAR QUALIFICATION. IN RELATION TO
THE VESSEL OR OTHER MEANS OF TRANSPORT OR PORT OF LOADING OR PORT OF
DISCHARGE.
4.ITEMS SHOULD BE SUITABLY PACKED IN
AIRWORTHY/SEAWORTHY PACKING
TO WITHSTAND SHOCKS WHATSOEVER DURING LOADING,UNLOADING AND TRANSIT.
5.DOCUMENTS PRESENTED WITH DISCREPANCY(IES) WHETHER INDICATED OR FOUND IS
SUBJECT TO A HANDLING FEE FOR USD50.00 WHICH IS PAYABLE BY THE BENEFICIARY AND
WILL BE DEDUCTED FROM PROCEEDS UPON PAYMENT.
6.ALL APPARENT SPELLING MISTAKES IN LC TEXT ARE ACCEPTABLE
EXCEPT IN DESCRIPTION OF GOODS AND AMOUNT OF GOODS.
7.FOR DISCREPANT DOCUMENTS, NOTWITHSTANDING ANY PRIOR NOTICE OF REJECTION
BY US, WE MAY IN OUR SOLE JUDGEMENT REFER THE DISCREPANCIES TO THE APPLICANT
FOR ACCEPTANCE AND WE RESERVE THE RIGHT TO RELEASE THE DOCUMENTS TO
APPLICANT AGAINST THEIR ACCEPTANCE/PAYMENT WITHOUT PRIOR NOTICE TO THE
PRESENTER UNLESS WE RECEIVE DIFFERENT DOCUMENT DISPOSAL INSTRUCTIONS FROM
THE PRESENTER BEFORE SUCH RELEASE.
F71B: Charges
ALL BANK CHARGES OUTSIDE INDIA ARE ON ACCOUNT OF BENEFICIARY.
F48: Period for Presentation
WITHIN 21 DAYS FROM THE DATE OF SHIPMENT BUT WITHIN THE VALIDITY OF LC.
F49: Confirmation Instructions
WITHOUT
F78: Instr to Payg/Accptg/Negotg Bank
WE SHALL REMIT THE PROCEEDS TO YOU UPON RECEIPT OF CREDIT COMPLIED
DOCUMENTS AS PER UCPDC600. WE HEREBY ENGAGE WITH DRAWERS AND/OR BONAFIDE
HOLDERS THAT DRAFT UNDER AND NEGOTIATED WITH CREDIT TERMS WILL BE DULY
HONOURED.THE AMOUNT OF EACH DRAFT MUST BE ENDORSED ON REVERSE OF THE
CREDIT BY THR NEGOTIATING BANK.
F57A: 'Advise Through' Bank - FI BIC
BSCHHKHH
BANCO SANTANDER, S.A. HONG KONG BRANCH
(HEAD OFFICE IN HONG KONG)
HONG KONG HK
F72: Sender to Receiver Information
/TELEBEN/PL ADVISE THE LC TO THE
//BENEFICIARY AND ACKNOWLEDGE
//RECEIPT
Report Footer
Number of Entities: 1
End of report

Questionnaire
Name of Respondent__________________________________, Address___________________________
______________________________, City____________________, Contact No_____________________.

1. Are you aware about the Commercial banks/ Indian Govt. undertaking banks?
Yes No
2. Are you Exporter / Importer of the goods?
Exporter Importer NILL
3. In which country you deal for Products/ Services and Technology Transfer?
United State of America China Singapore
United Kingdom Russia Europe
United Arab Emirates
4. You have any Letter of Credit with Your Bank for Foreign Trade Services?
Yes No
5. Which Indian bank you prefer for your business transactions?
Bank of Baroda Union Bank of India
Bank of India Punjab National Bank
HDFC
6. What is mode of the transport you use for Import/ Export?
Airway Waterway
7. Which companys software you use for Money Transfer?
Western Union money Transfer Money Gram
UAE Exchange
8. Which Company Charges more commission on Money Transfer?
UAE Exchange Western Union money Transfer
Money Gram
9. From which areas people deals most in Money Transfer?
Rural Urban
Semi-Urban
10. Are you happy with the services of private money transferees?
Yes No
11. From which area your received the most order regarding Import /Export?
Urban Semi-Urban
Rural
12. Are the Importer / Exporter uses the Letter of Credit?
Yes No