Summer Internship Project Report-forex.docx

A STUDY ON RISK MANAGEMENT OF FOREX TRADING IN BANK OF INDIA

A SUMMER INTERNSHIP REPORT SUBMITTED TO UTKAL UNIVERSITY IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF MASTER IN BUSINESS ADMINISTRATION (FINANCIAL MANAGEMENT) 2017-19

Submitted by: JYOTRIMAYEE SINGH Roll No.: -23706V172013 Session: - 2017-19 Under the Guidance of:

Internal Guide: PROF. PRADYOT KESHARI PRADHAN P.G. Department of Commerce Utkal University, Bhubaneswar

External Guide: SUBHENDU KUMAR MANDAL Forex Manager Bank of India Main Branch, Bhubaneswar

MASTER IN BUSINESS ADMINISTRATION (FINANCIAL MANAGEMENT) P.G. DEPARTMENT OF COMMERCE UTKAL UNIVERSITY BHUBANESWAR, ODISHA

DECLARATION I, J yotrimayee Singh, hereby declare that this piece of dissertation work entitled “Risk Management of Forex trading in Bank of India” has been prepared by me under the guidance of Prof. Pradyot Keshari Pradhan, is an original work submitted to P.G. Department of Commerce, Utkal University. It is a genuine piece of research work accomplished by me for the summer internship project towards the partial fulfillment of the requirement for the award of Master in Business Administration. I also hereby declare that this project report has neither been submitted nor published elsewhere.

Date: Place: Utkal University

Jyotrimayee Singh Roll No- 23706V172013 P.G. Dept of Commerce

ACKNOWLEDGEMENT

It is a pleasure to acknowledge my debt to all the people involved directly or indirectly, in the development of this project. This experience will definitely help me in my future endeavors of work.

I now take the opportunity to thank my project guide Mr. Subhendu Kumar Mandal, Forex Manager, Bank of India, Bhubaneswar branch for his foresight in giving me the opportunity to develop the ideas. I truly admire his skill and capacity of making clear-cut points for the requirement understanding.

I also extend my gratitude to Prof. Pradyot Keshari Pradhan, P.G. Department of Commerce, Utkal University for being a constant source of encouragement and guidance required for the completion of the project.

I would like to thank my parents, who always inspired me and provided necessary functional requirements, which helped to attain my goal.

My obligations remain to all those people and friends who have directly or indirectly helped me in successful completion of my project. No amount of words written here will suffice for my sense of gratitude towards all of them.

Date:

Jyotrimayee Singh

Place: Utkal University

Roll No- 23706V172013 P.G. Dept of Commerce

EXECUTIVE SUMMARY

The banking sector is an important pillar of Indian economy. It contributes greatly to the growth of the economy with vast network of branches all over the country. Allahabad Bank being the oldest joint stock bank has created many milestones. Despite of all the significant contributions the of the bank, Allahabad Bank continues to face certain constraints. It thus shows that providing adequate, time loan with proper repayment is one of the bigger issues for the bank. To start a new business, every venture needs funding. An entrepreneur usually starts a venture with his own funds and borrows the rest of his required amount from the bank. Likewise, Allahabad Bank is also trying to perform this duty in a very systematic manner. Thus the concept of loan has become very popular in the society for fulfilling the needs. But behind every success there are a lots of work involved in a systematic way. Loan Appraisal done by bank employees is the same thing behind a successful business organization. Allahabad Bank being one of the leading nationalized bank trying to create a balance between the surplus and deficiency of finance in the society. Its branches all over the country are performing this responsibility. Temple Marg branch of the bank is a live example.

CERTIFICATE This is to certify that Ms. Jyotrimayee Singh has undertaken Summer Internship Project (SIP) titled “Risk Management in Forex Trading of Bank of India” under my guidance and supervision.

This work is result of her original contribution and no part of this work has been submitted elsewhere for any degree or diploma.

I wish her all success in future endeavor.

PROF. PRADYOT KESHARI PRADHAN P.G. Department of Commerce Utkal University, Bhubaneswar

CERTIFICATE This is to certify that Ms. Jyotrimayee Singh has undertaken Summer Internship Project (SIP) titled “Risk Management in Forex Trading of Bank of India” under my guidance and supervision.

This work is result of her original contribution and no part of this work has been submitted elsewhere for any degree or diploma.

I wish her all success in future endeavor.

SUBHENDU KUMAR MANDAL Forex Manager Bank of India Main Branch, Bhubaneswar

Foreign exchange is the exchange of one currency for another or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around the clock. The foreign exchange market is a decentralized worldwide market. The participants in the foreign exchange market include central banks, commercial banks, brokers etc. The central banks monitor market movements and sentiments and intervene according to government policy. The function of buying and selling of foreign currencies in India is performed by authorized dealers / moneychangers appointed by the RBI. The foreign exchange department of the major banks are linked across the world on a 24 hour basis. Major commercial centers are London, Amsterdam, Frankfurt, Milan, Paris, New York, Toronto, Bahrain, Tokyo, Hong Kong and Singapore. Foreign exchange dates back to ancient times, when traders first began exchanging coins from different countries. However, the foreign exchange itself is the newest of the financial markets. In the last hundred years, the foreign exchange has undergone some dramatic transformations. The Bretton Woods Agreement, set up in 1944, remained intact until the early 1970s. Trading volume has increased rapidly over time, especially after exchange rates were allowed to float freely in 1971. In 1971, the Bretton Woods Agreement was first tested because of uncontrollable currency rate fluctuations, by 1973 the gold standard was abandoned by president Richard Nixon, currencies where finally allowed to float freely. Thereafter, the foreign exchange market quickly established itself as the financial market. Before the year 1998, the foreign exchange market was only available to larger entities trading currencies for commercial and investment purposes through banks, now online currency trading platforms and the internet allow smaller financial institutions and retail investors access a similar level of liquidity as the major foreign exchange banks, by offering a gateway to the primary (Interbank) market.

The FOREX refers to the Foreign Currency Exchange Market in which over 4,600 International Banks and millions of small and large speculators participate worldwide. Every day this worldwide market exchanges more than $1.7 trillion in dozens of different currencies. With the current growth rate the market is projected to grow to more than $1.9 trillion per day by the year 2006. With such volume, one can assume that the forex market is extremely volatile, changing at a moment’s notice, depending on conditions within that country.

The foreign exchange market is undisputedly the world's largest market place with the average daily turnover in excess of US$4 Trillion. Operating 24 hours a day, 5 days a week the foreign exchange market does not operate on a regulated exchange, therefore is known as an OTC (over-the-counter) transaction. The global foreign exchange market is the largest and the most liquid financial market in the world, with average daily volumes in the trillions of dollars. Foreign exchange transactions can be done for spot

or forward delivery. There is no centralized market for forex transactions, which are executed over the counter and around the clock.

The largest foreign exchange markets are located in major financial centers like London, New York, Singapore, Tokyo, Frankfurt, Hong Kong and Sydney. The term foreign exchange is usually abbreviated as "forex" and occasionally as "FX."

One of the prime advantages to trading foreign exchange is the sheer volume of market participants, in turn creating liquidity which cannot be matched by any regulated exchange - traded product or instrument. Like trading the share market, in theory the buying and selling of currencies is extremely simple - buy low, sell high and vice versa; however in practice learning the basics is essential before putting your hard earned cash on the line.

Forex Exchange Compared to Other Finacial Markets: So, what is forex trading market, really? The answers are simple – and complex. The basic concept behind the foreign exchange (or forex) market is for trading currencies, one pair against another. It’s the world’s largest market, consisting of almost $2 trillion in daily volume and is growing rapidly. The value of one currency is determined by its comparison to another currency via the exchange rate. The major currencies traded most often in the foreign exchange market are the euro (EUR), United States dollar (USD), Japanese yen (JPY), British pound (GBP) and the Swiss franc (CHF). These combine to form the most commonly traded

currency

pairs:

• EUR/USD • USD/JPY • GBP/USD • USD/CHF The first currency of a currency pair is the base currency; the second currency in the pair is the counter currency. One can think of currency pairs as a single unit. When buying a currency pair, the base currency is being bought, while the counter currency is being sold. The opposite is true when selling a currency pair. Foreign currency trading is conducted without a central exchange, but instead is traded over-the-counter (OTC). Unlike other markets, this decentralization allows traders to choose from a large number of different dealers or brokers with which to place trades. This also provides the means to compare prices and pip spreads before buying or selling. A number of tools and charts are used in forex currency trading and the educated trader uses these tools extensively to perform accurate analysis to determine whether to buy or sell a given currency pair. The forex market is operated in Europe, Asia and the United States in overlapping shifts, so currencies are constantly traded 24 hours a day. No single entity has the capability of influencing the market – at least for very long. Currency trading – at its most basic definition – is the act of buying and selling (trading) different currencies of the world. A typical scenario might go something like this: A trader is looking at the British pound (GBP) and U.S. dollar (USD). This is called a currency pair. The GBP is the base currency, and the USD is the secondary currency. News that the value of the GBP is up from previous reports creates a positive reaction and a spike in the value of the GBP. This, in turn, will cause a rally on the GBP/USD currency pair. If the opposite occurred, and a

positive announcement for the USD was reported, then the GBP/USD currency pair will fall, or dip. Either scenario can offer up a profit, depending on which part of the currency pair is bought or sold. The price of each currency within the pair is determined by a number of factors, such as changes in political leadership, economic booms or busts, even natural disasters.

Forex Myths Myths, rumors and legends are everywhere. The forex market is not immune. The new forex trader is likely to be inundated with a number of forex myths, legends and downright falsehoods, so it’s important to separate fact from fiction before your money leaves your hands. Here is a list of just a few:

Myth 1 - Forex can make you rich quick Think about forex as a journey, and not a destination. There is no final winning trade; no huge gains; no trade of the century. Advanced strategies like margin trading, options and futures require a great deal of analysis. Traders make money in the forex market by analyzing trends and making smart decisions. The gain on each trade is a small step in the direction of his or her long-term goals. Myth 2 – The forex market is rigged Sometimes you might hear a trader complaining that the market is against them. Every trade they make is a losing one. They blame the broker, the interbank, the government, the timing. The truth is this: foreign exchange rates change often and are too volatile to be rigged. Forex trading is not for the faint-hearted. Blaming everyone but yourself for bad trades will prevent you from learning and growing as a trader. The only person responsible for your poor trade performance is you. Myth 3 – The markets move in a predictable, scientific way The junk emails you get from companies trying to sell their guaranteed, scientific formulas are just that – junk. Anyone who tries to tell you that they have the market cornered with forex predictions or a single formula is just as crazy as those people who tell you that you can win the lottery by scientific method. Try doing some paper trading (simulated, such as with a demo) and find the pattern. It’s not there. Despite this market’s overwhelming size, when it comes to trading currencies, the concepts are simple. Let’s take a look at some of the basic concepts that all forex investors need to understand. Eight Majors Unlike the stock market, where investors have thousands of stocks to choose from, in the currency market you only need to follow eight major economies and then determine which will provide the best undervalued or overvalued opportunities. The following eight countries make up the majority of trade in the currency market: United States Euro zone (the ones to watch are Germany, France, Italy and Spain) Japan United Kingdom Switzerland Canada

Australia New Zealand These economies have the largest and most sophisticated financial markets in the world. By strictly focusing on these eight countries, we can take advantage of earning interest income on the most creditworthy and liquid instruments in the financial markets. Economic data is released from these countries on an almost daily basis, allowing investors to stay on top of the game when it comes to assessing the health of each country and its economy. Yield and Return When it comes to trading currencies, the key to remember is that yield drives return. When you trade in the foreign exchange spot market (where trading happens immediately or on the spot), you are actually buying and selling two underlying currencies. All currencies are quoted in pairs, because each currency is valued in relation to another. For example, if the EUR/USD pair is quoted as 1.2200 that means it takes $1.22 to purchase one euro. In every foreign exchange transaction, you are simultaneously buying one currency and selling another. In effect, you are using the proceeds from the currency you sold to purchase the currency you are buying. Furthermore, every currency in the world comes attached with an interest rate set by the central bank of that currency's country. You are obligated to pay the interest on the currency that you have sold, but you also have the privilege of earning interest on the currency that you have bought. For example, let’s look at the New Zealand dollar/Japanese yen pair (NZD/JPY). Let’s assume that New Zealand has an interest rate of 8% and that Japan has an interest rate of 0.5% In the currency market, interest rates are calculated in basis points. A basis point is simply 1/100th of 1%. So, New Zealand rates are 800 basis points and Japanese rates are 50 basis points. If you decide to go long NZD/JPY you will earn 8% in annualized interest, but have to pay 0.5% for a net return of 7.5%, or 750 basis points. The forex market also offers tremendous leverage – often as high as 100:1 – which means that you can control $10,000 worth of assets with as little as $100 of capital. However, leverage can be a double-edged sword; it can create massive profits when you are correct, but may also generate huge losses when you are wrong. Clearly, leverage should be used judiciously, but even with relatively conservative 10:1 leverage, the 7.5% yield on NZD/JPY pair would translate into a 75% return on an annual basis. So, if you were to hold a 100,000 unit position in NZD/JPY using $5,000 worth of equity, you would earn $9.40 in interest every day. That’s $94 dollars in interest after only 10 days, $940 worth of interest after three months, or $3,760 annually. Not too shabby given the fact that the same amount of money would only earn you $250 in a bank savings account (with a rate of 5% interest) after a whole year. The only real edge the bank account provides is that the $250 return would be risk-free. The use of leverage basically exacerbates any sort of market movements. As easily as it increases profits, it can just as quickly cause large losses. However, these losses can be capped through the use of stops. Furthermore, almost all forex brokers offer the protection of a margin watcher – a piece of software that

watches your position 24 hours a day, five days per week and automatically liquidates it once margin requirements are breached. This process ensures that your account will never post a negative balance and your risk will be limited to the amount of money in your account. Carry Trades Currency values never remain stationary, and it is this dynamic that gave birth to one of the most popular trading strategies of all time, the carry trade. Carry traders hope to earn not only the interest rate differential between the two currencies (discussed above), but also look for their positions to appreciate in value. There have been plenty of opportunities for big profits in the past. Let’s take a look at some historical examples. Between 2003 and the end of 2004, the AUD/USD currency pair offered a positive yield spread of 2.5%. Although this may seem very small, the return would become 25% with the use of 10:1 leverage. During that same time, the Australian dollar also rallied from 56 cents to close at 80 cents against the U.S. dollar, which represented a 42% appreciation in the currency pair. This means that if you were in this trade – and many hedge funds at the time were – you would have not only earned the positive yield, but you would have also seen tremendous capital gains in your underlying investment. Carry Trade Success The key to creating a successful carry trade strategy is not simply to pair up the currency with the highest interest rate against a currency with the lowest rate. Rather, far more important than the absolute spread itself is the direction of the spread. In order for carry trades to work best, you need to be long in a currency with an interest rate that is in the process of expanding against a currency with a stationary or contracting interest rate. This dynamic can be true if the central bank of the country that you are long in is looking to raise interest rates or if the central bank of the country that you are short in is looking to lower interest rates. Getting to Know Interest Rates Knowing where interest rates are headed is important in forex trading and requires a good understanding of the underlying economics of the country in question. Generally speaking, countries that are performing very well, with strong growth rates and increasing inflation will probably raise interest rates to tame inflation and control growth. On the flip side, countries that are facing difficult economic conditions ranging from a broad slowdown in demand to a full recession will consider the possibility of reducing interest rates. The Bottom Line Thanks to the widespread availability of electronic trading networks, forex trading is now more accessible than ever. The largest financial market in the world offers vast opportunities for investors who take the time to get to understand it and learn how to mitigate the risk of trading here. Understanding Forex Trading : When you are trading Forex you are trading one currency against another. An example would be when you are trading your Dollars for Euros. Most people have experienced this when visiting another country with a different currency. Because the rate for which you can trade your money fluctuates over time, it is also possible to earn money with currency trading. The only rule you have to follow says ‘buy low, sell high’. Of course this is not as easy as it sounds as you never know in advance what would be considered ‘low’ and

‘high’. However, if you know which factors influence the rate of a currency, you can make predictions about the future rate of this currency. An important aspect to know when trading is called the ‘spread’ of the currency. This is the difference between the rate to buy and the rate to sell the currency. This is expressed in ‘pips’, which is the smallest unit of price of a currency: 0.0001 of a currency unit. For example: Tabel 1: The Bid/Ask of the EUR/USD Bid Ask EUR/USD 1.3507 1.3512 In this case the spread is 5 pips (1.3512 – 1.3507 = 0.0005). This means that if you want to buy US Dollars with Euros, you will receive $1.3507. In case you immediately trade this back for Euros you will only receive €0.9996. In this case you lost €0.0004 by only changing from one currency to another and back. This is why a low spread is important when trading, to make sure your money will not all get lost just by trading. Predicting the Forex market The Forex market is very complicated and affected by many factors. Nevertheless, the price is always a result of all supply and demand forces. The demand and supply is influenced by several elements which can be put into three categories: 1.

Economic Factors This means the economic conditions and economic policy of a currency zone. The economic policy includes fiscal policy and monetary policy. The economic conditions consist of government budget deficits or surpluses, balance of trade levels and trends, inflation levels and trends and economic growth and health.

2.

Political Conditions This influence can be seen very strong during election time. Also in political unstable countries this is a major influence on the currency price. 3. Market Psychology This is a major influence in day trading. Currency speculators immediately react to the announcement of a specific economic number. This often results in a market being ‘oversold’ or ‘overbough’. Methods of Forecasting the Behavior of the Forex Market Trying to predict a market is a complex exercise and requires the use a scientific basis rather than guesswork to predict Forex market behavior. Primarily, there are 2 methods for predicting Forex market trends: • Technical Analysis • Fundamental Analysis Let’s try and understand how these two approaches work: Fundamental Analysis Every nation has it’s central bank which is responsible for the well being of the economy. Central banks watch some economic factors that affect the economy and adjust their economic policy accordingly. These factors are announced regularly and the exact time of the announcement is known in advance. These factors are the fundamental indicators of the economy. The most important central banks are FED of USA, ECB of European Union, BOJ of Japan and BOE of United Kingdom. There are many fundamental indicators but there are few of them that are called the “market movers”. They are called so because when they are announced they provide to the market the necessary steam to move. That happens because they have a great impact on economy and to traders’ positions also. As I say earlier fundamentals are important economic indicators that influence the direction of the market. Forex fundamentals are thus important economic numbers that represent the state of the economy of a certain country/region and therefore the underlying currency. There are thousands of fundamentals but most of them have very limited influence. For instance, typically, when a

Fundamental analyst is asked to predict the Forex market rates, would look at existing and expected interest rates, GDP growth rates, inflationary trends, weather changes affecting agricultural output, international trade balances, exchange rate policies of the countries involved, capital market status etc. before saying, “I believe given these indicators, the Forex market ought to be behaving in this way” and would conclude whether a currency is likely to appreciate or depreciate visa-vis the other one. Let’s analize some of this indicators: 1)

Interest Rate(IR) Every currency zone has an interest rate that is set by the central bank. This rate is the most influential number for the forex market. Higher rates makes it more attractive to possess a certain currency. The interest rate is a reflection of all other economic indicators. View a list of the interest rate of every major central bank.This is how it looks the worldwide IR. 2) The Gross Domestic Product (GDP) The GDP is an indicator that values the total market value of all goods and services produced in a country during a year. This makes it the broadest measure of the state of an economy. The Foreign Exchange (Forex) market is the biggest market on earth today. It has a daily turnover of more than 2.5 trillion US$, which is more than 100 times greater than the NASDAQ. The Forex market is traded 24 hours a day, Monday to Friday. The market consists of trading between large banks, central banks, currency speculators, multinational corporations, governments and other financial markets and institutions. 3) Industrial Production The Industrial Production indicator measures the change in production of a nation’s factories, mines and utilities. The report also covers the capacity utilizations. It is important as production reacts quickly to the economic state of a nation. 4) Consumer Price Index (CPI) The CPI is derived from a basket of products over 200 categories. It signals inflation risks and will therefore influence central banks policy concern. 5) Discover the News Impact on Forex Market. Retail Sales The Retail Sales indicator measures the total amount spent in retail stores throughout a country. It is an important fundamental because it signals consumer spending which accounts for a majority of overall economic activity. Understanding the main aspects of the Fundamentals will help us to gain a bigger picture understanding of how these factors shape and influence the actions of willing buyers and sellers. Personally, I do not base my trading decisions on the economic factors alone, but that does not mean that I choose to ignore the fundamentals altogether either.It can be of great benefit to any market professional to understand such things and why certain markets have positive and negative correlations with others and why certain news releases have a greater impact on prices than others.Always use some kind of economic calendar before placing your trades – I call this looking left and right before you cross the street. By far, it's better to be safe than sorry.

Technical Analysis : The Technical analysis method focuses on understanding the prevailing market trends and tries to pinpoint any reversal of this trend and predict how the Forex market is likely to behave in the future. It is more statistical in nature in the sense that this method relies heavily on historical data of prices and volumes

traded using charts to understand and interpret the market’s behavior. There are many mathematical tools available for making such analysis like various indicators, Number Theory, waves, gaps and trends etc. Technical indicators for Technical Analysis help us in analyzing the following: Identification of the trend for the currency pair : Whether the trend for the currency pair is bullish (uptrend) or bearish (downtrend). Or the currency pair is running sideways (range movement) Strength of the trend for the currency pair: If there is a trend (up or down) then whether the trend has strength to continue or it's weak, which may indicate that a correction or reversal may take place soon. Resistance and Support levels: If the currency pair price is falling then at what levels we can expect support and expect a reversal to upward movement. And If the currency pair is having an uptrend then at what levels we can expect resistance and can expect a reversal to downward movement. For example let’s suppose a currency pair is having a trend (up or down) and the trend slows down. Our analysis says that the trend should continue but a correction in opposite direction may take place... but to what level? Technical analysis indicators like Fibonacci retracements indicates the possible retracement levels during a reversal or price correction during a trend.There are too many technical analysis indicators available with various online Forex trading platforms. Many theories exist and you will probably be familiar with Gann, Elliot wave and Fibonacci and many traders use them but there not scientific.

Chapter -3 COMPANY OVERVIEW Bank of India: Bank of India (BoI), is a financial services provider commercial bank founded in the 1906 on September 7th. It has its head-quarters in Mumbai, Maharashtra, India. It is a type of a public company providing retail as well as commercial banking facility to the consumers. Government-owned since nationalization in 1969, it is one of India's leading banks, with 5086 bank-branches including 306 specialized branches. These branches are controlled through 54 Zonal offices and 8 national banking groups. There are 60 branches and 5 subsidiaries and 1 joint venture abroad. It is India’s 4th largest PSU bank, after State bank of India, Punjab National Bank and bank of Baroda. In July 1969 bank of India was nationalized with 13 other banks. BoI is a founder member of SWIFT (Society for Worldwide Inter Bank Financial Telecommunications) in India which facilitates provision of cost-effective financial processing and communication services. The Bank completed its first one hundred years of operations on 7th September 2006 and now it is 111 years young public sector bank. It has occupied and enviable position as compared to its peer banks like Bank Of Baroda, Punjab National Bank, Canara Bank etc. History of Bank of India: 1906: Founded with Head Office in Mumbai. 1921: BoI entered into an agreement with the Bombay Stock Exchange to manage its clearing house. 1946: BoI opened a branch in London, the first Indian bank to do so. This was also the first post-WWII overseas branch of any Indian bank. 1950: BoI opened branches in Tokyo and Osaka. 1951: BoI opened a branch in Singapore. 1953: BoI opened a branch in Kenya and another in Uganda. 1953: BoI opened a branch in Aden. 1955: BoI opened a branch in Tanganyika. 1960: BoI opened a branch in Hong Kong. 1962: BoI opened a branch in Nigeria. 1967: The Government of Tanzania nationalized BoI's operations in Tanzania and folded them into the government-owned National Commercial Bank, together with those of Bank of Baroda and several other foreign banks. 1969: The Government of India nationalized the 14 top banks, including Bank of India. In the same year, the People's Democratic Republic of Yemen nationalized BoI's branch in Aden, and the Nigerian and Ugandan governments forced BoI to incorporate its branches in those countries.

1970: National Bank of Southern Yemen incorporated BoI's branch in Yemen, together with those of all the other banks in the country; this is now National Bank of Yemen. BoI was the only Indian bank in the country. 1972: BoI sold its Uganda operation to Bank of Baroda. 1973: BoI opened a representative office in Jakarta. 1974: BoI opened a branch in Paris. This was the first branch of an Indian bank in Europe. 1976: The Nigerian government acquired 60% of the shares in Bank of India (Nigeria). 1978: BoI opened a branch in New York. 1970s: BoI opened an agency in San Francisco. 1980: Bank of India (Nigeria) Ltd, changed its name to Allied Bank of Nigeria. 1986: BoI acquired Paravur Central Bank (Karur Central Bank or Parur Central Bank) in Kerala in a rescue.1987: BoI took over the three UK branches of Central Bank of India (CBI). CBI had been caught up in the Sethia fraud and default and the Reserve Bank of India required it to transfer its branches. 2003: BoI opened a representative office in Shenzhen. 2005: BoI opened a representative office in Vietnam. 2006: BoI plans to upgrade the Shenzen and Vietnam representative offices to branches, and to open representative offices in Beijing, Doha, and Johannesburg. In addition, BoI plans to establish a branch in Antwerp and a subsidiary in Dar-es-Salaam, marking its return to Tanzania after 37 years. 2007: BoI acquired 76 percent of Indonesia-based PT Bank Swadesi. Source: “100 Years Success Story of Bank Of India” Bank of India’s Mission: “To provide superior, proactive banking services to niche markets globally, while providing cost-effective, responsive services to others in our role as a development bank, and in so doing, meet the requirements of our stakeholders”. Bank of India’s Vision: “To become the bank of choice for corporate, medium businesses and up market retail customers and to provide cost effective developmental banking for small business, mass market and rural markets”. Quality Policy of Bank of India:

Products and Services of Bank of India: In spite of being a public sector bank, this bank has got all kinds of products and services, which one can get in a modern bank. With their firm adherence to the policy of caution and prudence, they have been one of the leaders in introducing different kinds of innovative banking services and solutions. Following are the different services offered by B. O. I. in India: Ancillary Services Some of the popular supplementary services offered by the bank are as follows: 

Depository Services



Gold Coin (New)

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Insurance (Domestic travel, health, education etc.)



Mutual Fund



Remittance



Safe Custody

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Safe Deposit Locker



Star Cash Management Service

Cards Apart from the normal credit or debit cards, this bank even offers valued visa or master cards to its worldwide customers. The names of some of the cards offered by this Indian bank are given below:



Bank of India Master Card



Bank of India VISA Card

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Gift Card

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Platinum Debit Card

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VISA Electron

Deposit Schemes BoI offers varied types of deposit schemes like savings accounts, current accounts, salary accounts, fixed deposits, term deposits, recurring deposits, double benefit deposits, income certificates (Both quarterly and monthly) and many more. Some of these products are: 

Jai Jawan Salary Plus Accounts (New)



Star Benefit C. D. Plus Accounts



Star Diamond Savings Account

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Star Flexi Recurring Deposit Scheme

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Star Power Salary Account

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Star Sunidhi Tax Saving Deposit Scheme

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Star Suraksha S. B. Plus Account

Bank of India Loans The following are the names of the loans provided by the different branches of B. O. I. located all over the country: 

Star Autofin The Scheme provides loan for purchasing 2/4 wheeler vehicles (like car, scooter, motorcycle etc.).



Star Educational Loan The Educational Loan Scheme aims at providing financial support from the bank to deserving/ meritorious students for pursuing higher education in India and abroad.



Star Holiday Loan To meet the expenses (like airfare/Train/Bus charges, expenses for accommodation, sightseeing, etc.)

for

going

for

pilgrimage/tours/excursions

etc.

undertaken/to

be

undertaken

by

Self/spouse/children/ parents/family members/close relatives of proponent within India or abroad. 

Star Home Loan This type of Bank of India Loans provides loans to purchase a Plot for construction of a House, to purchase/construct house/flat, as well as for renovation/repair/alteration/addition to house/flat, furnishing of house, Takeover of customer's Housing Loan extended by other Banks/F.Is /NBFCs at highly flexible and liberal terms and conditions.



Star I. P. O. Loan to subscribe to Initial Public Offerings (IPO) including through book-building.



Star Mortgage Loan

This scheme provides loan/overdraft facility against mortgage of property at low rate of interest. The product provides an opportunity to customers to borrow against a fixed asset (mortgage of property) at a short notice without much paper work/attendant hassles. 

Star Mitra Personal Loan The objective of this type of Bank of India Loans is to help Physically Challenged persons to function independently and the purpose is to purchase durable and sophisticated aids / appliances that promote their physical and social rehabilitation.



Star Pensioner Loan Scheme The target Customers of this type of Bank of India Loans are the Regular Pensioners or Family Pensioners drawing regular monthly pension through the branch and the eligibility is retired employees (other than dismissed/compulsorily retired).

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Star Personal Loan Under the Bank of India Personal Loan system the Star Personal Loan Scheme provides loans to meet various Personal requirements of customers and their family. Bank offers loans for marriage expenses, medical expenses, educational expenses, purchase of consumer durables etc. Maximum quantum of advance is Rs.10.00 lakhs, depending upon the income, with very attractive interest rate and easy repayment plan.

N.R.I. Banking of BOI Besides the different deposit schemes for N. R. I.s, this bank in India offers varied other types of international banking services, some of which are mentioned below: 

F. C. N. R. (Foreign Currency Non-resident) Accounts

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Forex Card

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Integrated Treasury

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N. R. E. (Non-resident External) Accounts

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Star e-Remit

NRI Deposit Schemes Non Resident Indians (NRIs) have a choice of two schemes for depositing their savings with Bank of India, which are: 

Foreign Currency Non Resident (FCNR) Accounts

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Non-Resident External (NRE) Accounts

NRI -Yield Enhancing Scheme BOI provides Yield Enhancing Schemes for NRIs at their Overseas Branches.

Foreign Currency Deposit Schemes Eligible Depositors: All individual Indian Residents will be allowed to open such account. However, the facility will not be available to corporate/partnership firm/trusts, HUF etc. registered / based in India.

Currency of the account: Account will be maintained in GBP, USD and EURO Currencies. Nature of Account: Fixed Deposit for a period of 1 month (minimum) 3 months, 6 months and 1 year (maximum). Minimum amount of Deposit: Minimum amount of deposit will be as follow : USD - 5000/- GBP - 5000/Euro – 5000/-. Online Services The different kinds of online services offered by B. O. I. are as follows: 

Bill Payment

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Fund Transfer (Inter-bank)

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Internet Banking

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Mobile Banking

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Share Trading

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Tax Payment

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Ticket Booking

Bank of India USA Bank of India is a premier and one of the oldest Commercial Banks In India, with presence all over India as also in the world. The Bank was established in September 1906 and has been maintaining a position of pride among the top 5 commercial banks in the country. Today the Bank has over 2594 branches spread all over India and 23 branches/offices overseas - in 10 countries, spanning all time zones. The Bank of India USA branches, New York Branch and San Francisco Agency have been operating in the USA since December 1978 and December 1977 respectively. Bank Of India has been established in 1906 and is headquartered in Mumbai (Bombay), India with global assets of about USD 22 Billion. It has a network of over 2524 branches spread over the length and breadth of India. Besides this, Bank Of India has branches in international commercial centers like London, Tokyo, Singapore, Hong Kong, Paris, etc. and is well-versed in international trade. The BOI USA branches, New York and San Francisco have a team of banking professionals who come from different parts of India. These officers are very well-versed with the intricacies of India-Related Trade and having had adequate exposure in US, are familiar, confident, and comfortable, Doing Business The American Way. Since they have good rapport with key personnel in the Banking Sector In India, Bank Of India is in a position, unlike any other international bank here, to move things in India, should there be snags for any reason. Services available at the San Francisco Agency to Send Money in India: 

Export/Import Trade Services

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Import/Export Bills for Collection

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Standby & Commercial Letters of Credit

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Trade Finance

Current Position of Bank of India: Bank of India key Products/Revenue Segments include Interest & Discount on Advances & Bills which contributed Rs 27187.86 Crore to Sales Value (69.19 % of Total Sales), Income From Investment which contributed Rs 9059.92 Crore to Sales Value (23.05 % of Total Sales), Interest On Balances with RBI and Other Inter-Bank Funds which contributed Rs 2012.21 Crore to Sales Value (5.12 % of Total Sales) and Interest which contributed Rs 1030.86 Crore to Sales Value (2.62 % of Total Sales)for the year ending 31Mar-2017. The Bank has reported a Gross Non Performing Assets (Gross NPAs) of Rs 62328.46 Crore (16.58 % of total assets) and Net Non Performing Assets (Net NPAs) of Rs 28207.27 Crore (8.26% of total assets). For the quarter ended 31-03-2018, the company has reported a Standalone Interest Income of Rs 5919.94 Crore, down -6.49 % from last quarter Interest Income of Rs 6331.06 Crore and down -12.48 % from last year same quarter Interest Income of Rs 6764.29 Crore. The bank has reported net profit after tax of Rs 3969.27 Crore in latest quarter. Overseas business has de-grown by 9.70% during FY 2016-17 compared to last year de-growth of 2.87%. Global business has grown by 4.38% during FY 2016-17 compared to last year de-growth of 5.19%. Total Business mix (Deposits Advances) reached at Rs. 9,33,820 crore, a growth of Rs. 39,153 crore. Total deposits increased by 5.27% to Rs. 5,40,032 crore. Advances increased by 3.18% to Rs. 3,93,788 crore. Bank of India has been ranked as the 2nd Most Trusted Bank in the PSU Bank category by Economic Times. Bank of India has been awarded as Best Bank for Managing IT Ecosystem among Large Banks in IDRBT Banking Technology Excellence Awards for FY 2015-16. Bank also received the Best Bank Award for Electronic Payments among Large Banks from IDRBT Banking Technology Excellence Awards for FY 2015-16, During the year Bank has raised Rs.1338 crore by issue of 12,06,60,113 fresh equity shares to Government of India at the price Rs.110.89 per share. As per Basel III framework, the Bank’s Capital Adequacy Ratio was 12.14% which is higher than the regulatory requirement of 10.25%

DOCUMENTARY LETTER OF CREDIT

Need for Documentary Letter of Credit Normally, in international trade, the exporter may not be ready to take risk of selling his goods abroad unless he is sure of getting his payment. Likewise, the buyer may not buy goods in international market from an unknown party due to risk of not meeting his requirements. Both these risks are quiet high, which may sometime result into major loss. This perception is not congenial to development of international trade. The seller, therefore, needs an assurance of payment on behalf of the buyer; similarly, a buyer would want somebody to ensure due performance by the seller as per the contract. Both the parties can feel satisfied, if a professional intermediate like bank lends his support by issuing Documentary Credit on behalf of the buyer (importer) in favor of the seller (exporter). What is a Documentary Credit? A Documentary Credit is an instrument, which can be used for settling the trade payments. It may be defined as follows: “Credit means any arrangement, however, named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honour* a complying presentation.” * Honour means: (a) To pay at sight if the credit is available by Sight payment. (b) To incur a deferred payment undertaking and pay at maturity if the credit is available by deferred payment. (c) To accept a bill of exchange (‘draft’) drawn by the beneficiary and pay at maturity if the credit is available by acceptance. In common parlance, documentary credit is like a bank guarantee except that the bank guarantee covers a situation of non-performance of the contract (payment is made when our customer does not perform as per the contract). Whereas a documentary credit covers a situation where payment is made on performance of contract. From the definition, we can derive five important features of documentary credits, viz.: 

It is an irrevocable undertaking in writing

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given by a Bank called the Opening Bank

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on behalf of its customer who is the importer or buyer

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to honour bills drawn by a third party who may be the beneficiary or the transferee under the credit

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subject to compliance with terms and conditions of the credit

Parties involved in Letter of Credit: 1. Opener (Importer/Buyer): means the party on whose request the credit is issued. 2. Issuing Bank: means the bank that issued a credit at the request of an applicant or on its own behalf. 3.

Advising Bank: means a bank that advises the credit at the request of the issuing bank.

4. Beneficiary (seller/ exporter): means the party in whose favor the credit is issued. 5. Nominated Bank: means the bank, with which the credit is available or any bank in the case of a credit available with any bank. 6. Confirming Bank: means the bank which guarantees honouring of bills by the Opening Bank under the credit i.e. if the Opening Bank fails for any reason to honour the Confirming Bank honours, wherever available. 7. Reimbursing Bank: the bank which pays claims made by the nominated bank after negotiating bills drawn by the exporter under the credit. Types of Letter of Credit 1.

Irrevocable Letter of Credit: It carries a definite undertaking of the issuing bank to honour the documents drawn strictly in conformity with the terms and conditions of the credit. It cannot be amended nor cancelled without the consent of all parties concerned. Any Credit issued will be an irrevocable credit.

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Revocable Letter of Credit: this credit can be amended/modified/cancelled any time by the opening bank without the consent of the beneficiary. Hence, this credit is not a safe credit from the point of view of the beneficiary. However, in practice, this type of credit is seldom issued. Even though the credit can be cancelled any time, but the opening bank would be liable to the beneficiary for the shipments made by him prior to receipt of notice by him about the cancellation of credit by the issuing bank.

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Confirmed Letter of Credit: means the bank that adds its confirmation* to a credit upon the issuing bank’s authorisation or request. *Confirmation means a definite undertaking of the confirming bank, in addition to that of the issuing bank, to honour or negotiate a complying presentation.

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Anticipatory Letter of Credit (a)

Red Clause Letter of Credit: In this credit, the issuing bank authorizes nominated bank, which is in beneficiary’s country, to give pre-shipment credit to the beneficiary. This advance is given to the beneficiary for purchase of raw-material/processing/packing of the goods to be exported. It is given at the risk and responsibility of the issuing bank and is unsecured.. The pre-shipment advance given in this way would be adjusted against the documents tendered by the exporter for negotiation. This type of L/C is known as `Red Clause Letter of Credit’.

(b)

Green Clause Letter of Credit: This credit is an extended version of red clause credit. In addition to whatever has been given in red clause credit, it covers charges for warehousing

of goods at the port of shipment, when waiting for ship or space and insurance therefore. Generally, the advance under this credit is given to the exporter after the goods are lodged in bonded warehouse and would be adjusted once they are shipped on board. Under this credit, warehouse warrants are given as a security for the advance. 5.

Transferable Letter of Credit: means a credit that specifically states it is “transferable”. A transferable credit may be made available in whole or in part to another beneficiary (“second beneficiary”) at the request of the beneficiary (“first beneficiary”).  Transferring bank means a nominated bank that transfers the credit or, in a credit available with any bank, a bank that is specifically authorised by the issuing bank to transfer and that transfers the credit.  A credit may be transferred in part to more than one second beneficiary provided partial shipments are allowed.

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Back-to back Letter of Credit: The beneficiary of the export credit, who is not the manufacturer of the goods, may approach a bank to open a letter of credit in favour of the manufacturer who is ready to supply the goods. Such a letter of credit is opened on the strength of the export letter of credit and hence called back-to-back letter of credit. Such a documentary credit should be opened only on behalf of the good exporters and suppliers.

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Revolving Letter of Credit:  When a buyer wants a regular supply of goods from the foreign/ domestic supplier, he may approach his banker to open a revolving letter of credit in supplier’s favour.  When the shipment is made and the documents are drawn on the opener as per the terms of credit, the documents are negotiated and forwarded to the drawee for payment.  When the payment is made, the credit is reinstated and made available to the beneficiary on receipt of the advice from the issuing bank.  Further negotiations will take place after the advice of reinstatement is received.  Revolving letter of credit should stipulate maximum drawings under the credit and should have reinstatement clause.

8. Stand-by Letter of Credit: The very name of this credit suggests that it is not a regular letter of credit, but a sort of stand-by or back-up credit. These types of credits can be issued in India, but are very much in vogue in Western Countries, especially in U.S.A in place of guarantee. These credits are generally used as substitutes for performance guarantee or for securing loans. As per FEMA, now they can be issued in India for imports of certain category as per FEDAI guidelines. Our exporters can freely receive standby letter of credit to cover their exports of goods.

INCOTERMS 2000 INCOTERMS means International Commercial Terms. These terms were first defined by the ICC in 1936 and were revised from time to time to suit the requirement of trade. The terms were last revised in the year 2000 and hence known as INCOTERMS –2000. These are trade terms commonly used in commercial contracts and accepted by the merchants worldwide. These terms have got fixed meaning and thus there is no scope for doubts between buyer and seller. The terms clearly define obligations between the seller and the buyer in respect of the following:  Giving Delivery / Taking delivery  Contract of carriage and insurance  Transfer of risk  Division of cost  Notice to the buyer /seller  Proof of delivery  Packaging / inspection of goods Incoterms are abbreviated language of rights and obligations between the two parties to a contract in respect of the following:  Functional responsibilities of the two parties at the time delivery of the goods. It pinpoints the cost, which is to be borne by either the exporter or by the importer.  Bearing of Risks up to what point should be borne by the exporter in the form of loss of or damage to goods and from which point on wards, the responsibility passes on to importer? The International Chambers of Commerce (ICC) has a naming standard and three letter abbreviations for the 13 key INCOTERMS. These are listed below in order of decreasing cost and responsibility to the buyer. These INCONTERMS can be grouped in to four: E, F, C and D Terms E terms i.e. Ex Works. Here Seller has minimum obligations F terms are used when buyer takes the contract of carriage. C terms are used when seller to make contract of carriage and / or insurance. D terms are related to arrival contracts. EXW – Ex works The seller fulfils his delivery obligation by making the goods available for the buyer at his own premises (factory, warehouse, place of sale) or at some other particular place where the goods are stored at the time of the conclusion of the contract. The term also obliges the seller to notify the buyer when and where the goods will be placed at his disposal. The buyer must take delivery as soon as they have been placed at his disposal and the risk is transferred from seller to buyer at this very moment. FRC /FCA – Free Rail Carriage /Free Carriage Air It is perhaps the most suitable term for cases where it is intended that the buyer should arrange and pay for the carriage and bear any risks in connection with the unavailability of transport. It could be used for any type of transport including cases where the mode of transport is not mentioned at all (unnamed transport) or

when combination of different modes is intended (multi-modal transport). The seller fulfils his delivery obligation by handing over the goods for carriage to the carrier nominated by the buyer. It is prudent to specify exactly at which point the goods should be handed over, e.g. “FCA NN terminal”. One should not use any of the F-terms without somehow indicating at which place or port, or within which range and may render the whole contract invalid because of uncertainty. FAS-Free Alongside Ship The seller fulfils his delivery obligation by placing the goods at the ship’s side irrespective of whether this occurs on the quay or by bringing lighters on to the ship when she is lying on the roads. It is for the buyer to nominate the ship and the term can only be used when maritime transport or transport on inland waterways is intended. FOB – Free on Board FOB is one of the oldest delivery terms and has traditionally held a dominant position in world trade. The passage of the ship’s rail is according to FOB decisive for the division of functions, costs and risks between the seller and the buyer. Again, the rail could under FOB be understood as in imaginary customs border so that the seller has to clear the goods for export. As has already been mentioned, additions to FOB may extend the obligations of the seller even after the FOB-point has been reached, such as by the expressions “FOB stowed” or “FOB stowed and trimmed”,. In order to clarify that these additions only relate to costs one could also explicitly state “loading costs for seller’s account” or “Costs for loading, stowage and trimming for seller’s account”. If it is intended that the seller should also bear the risks connected with these operations, one could add the words “and risks.” CFR – Cost and Freight CFR can only be used when the goods are to be carried by sea. Nevertheless, in practice these trade terms are sometimes used also for carriage by other modes of transport. CFR, like FOB, signifies that the seller fulfils his delivery obligation by placing the goods onboard the ship. But, as distinguished from FOB, the seller has the obligation to procure the contract of carriage and pay the freight for carriage to the indicated arrival point. It is also for the seller to clear the goods for export. CIF – Cost, Insurance and Freight The CIF term is – wholly identical with the CFR term with only one exception; namely that according to CIF the seller’s obligations include the obligation to procure and pay for transport insurance. This is particularly appropriate since, according to CIF, the seller is only obliged to insure the goods on minimum conditions, if the parties have not agreed otherwise. CPT – Carriage Paid to The CPT term corresponds to CFR insofar as it is based on the main obligation of the seller to hand the goods over for carriage and procure and pay for the carriage to the agreed delivery point named after the term. As with all C-terms, the risk of loss of or damage to the goods will pass from the seller to the buyer already when the goods are handed over to the carrier. But there are many important differences between CPT and CFR. First, as has already been mentioned, CFR can only be used for maritime carriage. This

follows from the fact that the risk passes when the goods are placed onboard a ship and from the fact that the seller has to tender such a transport document which is normally only available from sea carriers. CPT can be used for all modes of transport. According to CPT, buyer will have to bear the risk for the precarriage, while the passing of the risk according to CFR does not occur until the goods are placed onboard the ship in the port of shipment. According to CPT, as distinguished from CIP, it is for buyer to arrange his own insurance cover. He would then have to ensure that he is not without desirable insurance protection for the land carriage in the country of export. In addition, the buyer must assess any potential risk of delay occurring in connection with the inland carriage and the transshipment from the means of transport used for the inland carriage to the ship. Where reliable through transports from door to door by so-called multi-model transport operators (MTOs) are available, the risk for the buyer to use the term CPT is of course considerably diminished particularly when such operators are prepared to give guarantees for timely dispatch and arrival of the goods. CIP – Carriage and Insurance Paid The CIP term is in every respect wholly identical with the CPT term except with respect to the seller’s added obligation to procure and pay for insurance. DES – Delivered Ex Ship The seller has to make the goods available to the buyer in the ship before discharge and it is for the buyer to clear the goods for import. The whole cost of discharge will fall upon the buyer. DES is only appropriate where chartered vessels carry goods. Under DES it is important to require the seller to give notice to the buyer when the ship is expected to arrive at the port of discharge, so that the buyer can prepare himself in time for the unloading operations. DEQ –Delivered Ex Quay According to the term the seller’s obligations extend until the goods have been discharged on to the quay in the port of destination. Consequently, the seller must absorb all costs of discharge on to the quay, such as value added tax (VAT). DAF – Delivered at Frontier The DAF term clarify the situation when it is intended that the seller should bear the cost and risk up to the border in the country of import or possibly in some cases the border of a third country. DDU – Delivered Duty Unpaid The seller had undertaken to carry goods all the way to a point in the country of import but without the obligation to clear the goods for import. DDP- Delivered Duty Paid This represents the seller’s maximum obligation whenever the point named after the trade term indicates delivery at the buyer’s premises. It appears already from the name of this term that it is for the seller to clear the goods for import and pay customs duties and other official charges levied in connection with the import, thereby including VAT payable upon import.

FOREIGN EXCHANGE RATE What is Foreign Exchange Rate? A foreign exchange rate is the rate at which one currency is exchanged for another. Thus, an exchange rate can be regarded as the value of one country’s currency in relation to another currency. An exchange rate is a ratio between two monies. If 5 UK pounds or 5 US dollars buy Indian goods worth Rs. 400 and Rs. 250 then pound- rupee or dollar-rupee exchange rate becomes Rs. 80 = £1 or Rs. 50 = $1, respectively. Exchange rate is usually quoted in terms of rupees per unit of foreign currencies. Thus, an exchange rate indicates external purchasing power of money. An exchange rate is the price of a nation’s currency in terms of another currency. Thus, an exchange rate has two components, the domestic currency and a foreign currency, and can be quoted either directly or indirectly. In a direct quotation, the price of a unit of foreign currency is expressed in terms of the domestic currency. In an indirect quotation, the price of a unit of domestic currency is expressed in terms of the foreign currency. A fall in the external purchasing power or external value of rupee (i.e., a fall in exchange rate, say from Rs. 80 = £1 to Rs. 90 = £1) amounts to depreciation of the Indian rupee. Consequently, an appreciation of the Indian rupee occurs when there occurs an increase in the exchange rate from the existing level to Rs. 78 = £1. In other words, external value of the rupee rises. This indicates strengthening of the Indian rupee. Conversely, the weakening of the Indian rupee occurs if external value of rupee in terms of pound falls. Remember that each currency has a rate of exchange with every other currency. Flexible Exchange Rates Most exchange rates are determined by the foreign exchange market, or forex. The exchange rates that fluctuate on a moment-by-moment basis according to foreign exchange market is called a flexible or floating exchange rate. The flexible rates follow what forex traders think the currency is worth. Those judgments depend on a lot of factors. The three most important are central bank’s interest rates, the country's debt levels and the strength of its economy. Fixed Exchange Rates A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime where a country's currency doesn't vary according to the forex market. The country makes sure that its currency value against the dollar, or other important currencies, remain the same. It buys and sells large quantities of its currency, and the other currency, to maintain that fixed value.

Factors affecting Foreign Exchange Rates: Foreign Exchange Rate (ForEx Rate) is one of the most important means which determines the relative level of economic health of a country. A country’s foreign exchange rates provides a window to its economic firmness, which is why it is constantly scrutinized and examined. The exchange rate is defined as “the rate at which one country’s currency may be converted into another.” It may vary daily due to changing market forces of supply and demand of currencies from one country to another. For these reasons, when sending or receiving money internationally, it is important to interpret what regulates and affects exchange rates. Some of the leading factors that influence the variations and fluctuations in exchange rates are mentioned below: 

Inflation Rates: Changes in market inflation leads to changes in currency exchange rates. A country with a consistently lower inflation rate exhibits a rising currency value while a country with higher inflation typically sees decline in its currency value, usually followed by higher interest rates.

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Interest Rates: Change in interest rate affects currency value and exchange rate. Forex rates, interest rates, and inflation are all correlated. Increase in interest rates leads to appreciation in the value of a country’s currency because higher interest rates provide higher rates to lenders, thereby attracting more foreign capital, which results a rise in exchange rates. o Higher interest rates cause an appreciation. o Cutting interest rates tends to cause a depreciation.

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Country’s Current Account / Balance of Payments: A country’s current account reflects balance of trade and earnings on foreign investment. It consists of total number of transactions including its exports, imports, debt, etc. A deficit in current account due to spending more of its currency on importing products than it is earning through sale of exports causes depreciation. Balance of payments fluctuates exchange rate of its domestic currency.

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Government Debt: Government debt is public debt or national debt owned by the central government. A country with government debt is less likely to acquire foreign capital, leading to inflation. Foreign investors will sell their bonds in the open market if the market predicts government debt within a certain country. As a result, there will be a decrease in the value of its exchange rate.

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Terms of Trade: Related to current accounts and balance of payments, the terms of trade is the ratio of export prices to import prices. A country's terms of trade improves if its exports prices rise at a greater rate than its imports prices. This results in higher revenue, which causes a higher demand for the country's currency and an increase in its currency's value. This results in an appreciation of exchange rate.

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Political Stability & Performance: A country's political state and economic performance can affect its currency strength. A country with less risk for political turmoil is more attractive to foreign investors, as a result, drawing investment away from other countries with more political and

economic stability. Increase in foreign capital, in turn, leads to an appreciation in the value of its domestic currency. A country with sound financial and trade policy does not give any room for uncertainty in value of its currency. But, a country prone to political confusions may see a depreciation in exchange rates. 

Recession: When a country experiences a recession, its interest rates are likely to fall, decreasing its chances to acquire foreign capital. As a result, its currency weakens in comparison to that of other countries, therefore lowering the exchange rate.

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Speculation: If a country's currency value is expected to rise, investors will demand more of that currency in order to make a profit in the near future. As a result, the value of the currency will rise due to the increase in demand. With this increase in currency value comes a rise in the exchange rate as well.

All of these factors determine the foreign exchange rate fluctuations. If you send or receive money frequently, being up-to-date on these factors will help you better evaluate the optimal time for international money transfer. To avoid any potential falls in currency exchange rates, opt for a locked-in exchange rate service, which will guarantee that your currency is exchanged at the same rate despite any factors that influence an unfavourable fluctuation.

DIFFERENT TYPES OF FOREIGN EXCHANGE TRANSACTION AND ASSOCIATED RISKS A common definition of exchange rate risk relates to the effect of unexpected exchange rate changes on the value of the firm. In particular, it is defined as the possible direct loss (as a result of an unhedged exposure) or indirect loss in the firm’s cash flows, assets and liabilities, net profit and, in turn, its stock market value from an exchange rate move. The assets and liabilities or cashflows of an enterprise, that are denominated in foreign currencies undergo a change in their value, as measured in domestic currency, over a period of time, because of variation in exchange rate. This variability in the value of assets and liabilities or cashflows is referred to as exchange rate risk. When the value and the maturity dates of assets and liabilities as well as claims and counterclaims in a foreign currency are matched against each other, then there is no net exposure. In such a situation, there is no foreign exchange risk. But foreign exchange risk results from an open position - the position can be either long or short. When an enterprise owns a net claim or an asset in foreign currency, it is said to be long; and when it has a liability in foreign currency, it is said to be short. Fluctuations in exchange rates leads to variations in the value of assets and liabilities warrant management or hedging of risk. The word 'hedging' means taking steps to reduce risk. To manage the exchange rate risk inherent in firms’ operations, a firm needs to determine the specific type of current risk exposure, the hedging strategy and the available instruments to deal with these currency risks. Exchange risk results from the fact that future costs and cashflows are denominated in foreign currencies. Essentially, it means that if exchange rate changes, it affects the amount of cashflow, converted into domestic currency. There are three types of exchange risks. These are: (1) Transaction risk, (ii) Translation or Consolidation risk, and (iii) Economic risk. Transaction risk This is the risk of an exchange rate changing between the transaction date and the subsequent settlement date, i.e. it is the gain or loss arising on conversion. This type of risk is primarily associated with imports and exports. If a company exports goods on credit then it has a figure for debtors in its accounts. The amount it will finally receive depends on the foreign exchange movement from the transaction date to the settlement date. As transaction risk has a potential impact on the cash flows of a company, most companies choose to hedge against such exposure. Measuring and monitoring transaction risk is normally an important component of treasury risk management. The degree of exposure is dependent on: (a) The size of the transaction. (b) The hedge period, the time period before the expected cash flows occurs. (c) The anticipated volatility of the exchange rates during the hedge period. The corporate risk management policy should state what degree of exposure is acceptable. This will probably be dependent on whether the Treasury Department is been established as a cost or profit centre.

Economic risk Transaction exposure focuses on relatively short-term cash flows effects; economic exposure encompasses these plus the longer-term affects of changes in exchange rates on the market value of a company. Basically this means a change in the present value of the future after tax cash flows due to changes in exchange rates. There are two ways in which a company is exposed to economic risk. Directly: If a firm's home currency strengthens then foreign competitors are able to gain sales at its expense because the products have become more expensive (or margins have to be reduced) in the eyes of customers both abroad and at home. Indirectly: Even if the home currency does not move in relation to the customer's currency, the firm may lose competitive position. For example suppose a South African firm is selling into Hong Kong and its main competitor is a New Zealand firm. If the New Zealand dollar weakens against the Hong Kong dollar the South African firm has lost some competitive position. Economic risk is difficult to quantify but a favoured strategy to manage it is to diversify internationally, in terms of sales, location of production facilities, raw materials and financing. Such diversification is likely to significantly reduce the impact of economic exposure relative to a purely domestic company, and provide much greater flexibility to react to real exchange rate changes. Translation risk The financial statements of overseas subsidiaries are usually translated into the home currency in order that they can be consolidated into the group's financial statements. It is the translation not the conversion of real money from one currency to another. The reported performance of an overseas subsidiary in home-based currency terms can be severely distorted if there has been a significant foreign exchange movement. If initially the exchange rate is given by $/£1.00 and an American subsidiary is worth $500,000, then the UK parent company will anticipate a balance sheet value of £500,000 for the subsidiary. A depreciation of the US dollar to $/£2.00 would result in only £250,000 being translated. Unless managers believe that the company's share price will fall as a result of showing a translation exposure loss in the company's accounts, translation exposure will not normally be hedged. The company's share price, in an efficient market, should only react to exposure that is likely to have an impact on cash flows. Exchange Risks for Banks Exchange risk for banks emanates from their activities relating to currency trading, management of risks for their clients as also the risks of their own balance sheet and operations. Broadly, we can classify these risks in four categories: (1) Exchange rate risk, (2) Credit risk, (3) Liquidity risk, and (4) Operational risk.

Exchange Rate Risk Exchange rate risk relates to appreciation or depreciation of currencies. Every bank that has a long position in a currency runs a risk of loss if that currency depreciates. Likewise, any bank that has short position in a currency runs the risk of loss if that currency appreciates. The risk can result from the mismatch of amounts of assets and liabilities as well as from the mismatch of maturity dates of the assets and liabilities. When an exchange dealer of a bank takes a position in a currency, he does so on the assumption that the currency is going to evolve in his favour. The currency, however, may move in the opposite direction resulting in a loss. In addition, the dealer also runs the risk of interest rate changes. If, for- example, the position taken by the dealer is financed by a loan which needs to be renegotiated during the period of the position, the dealer is exposed to a risk, as the interest rate of the borrowed currency may increase. That is why limits are prescribed by the banks on the total position as well as on the position per currency. These limits depend on the financial situation of the bank and on its reading of the ensuing risk. Likewise, the position of a dealer should be closed if he has already suffered a certain amount of loss. Credit Risk The second category of risks that banks are exposed to is credit risk. This risk arises from the possibility of a counterparty making a default. This risk may appear either during the period of contract or at the maturity date. It can be reduced by fixing the limits of operations per client, based on the creditworthiness of the client, by incorporating the clauses for rescinding the contract if the rating of counterparty goes down. The Basle Committee, consisting of the governors of Central banks of G10 observed that the increasing complexity, diversity and growth in volume of derivative products present increasing challenges for the management of risk. It makes the following recommendations for containment of risk: (i) constant follow up on risks, their measurement (quantification), supervision and control, (ii) effective information system, and (iii) procedures of audit and control. Liquidity Risk This is the risk of refinancing. It may happen when a dealer has placed funds for a period longer than that of the deposits that finance this placement. At the time of refinancing, the interest rate may go up, resulting in a loss for the dealer. Similarly, in a reverse situation, the dealer may increase his profits. Operational Risk This risk is related to the operations of the bank. The bank may be able to limit this type of risk by precisely identifying the problems: definition of responsibilities, reporting, accountability for operations and so on.

Transaction risk and the operating risk are called cash flow exposure or economic exposure, while the translation risk is called the accounting exposure.

FOREIGN EXCHANGE EXPOSURE: A BANK OF INDIA PROSPECTIVE Foreign Exchange Exposure refers to the risk associated with the foreign exchange rates that change frequently and can have an adverse effect on the financial transactions denominated in some foreign currency rather than the domestic currency of the company. In other words, the firm’s risk that its future cash flows get affected by the change in the value of the foreign currency, in which it has maintained its balance sheet, due to the volatility of the foreign exchange rates, is termed as foreign exchange exposure. It is not only those firms who directly make the financial transactions in the foreign currency denominations faces the risk of foreign exposure, but also, the other firms who are indirectly related to the foreign currency is exposed to foreign currency risk. For example, if Indian company is competing against the products imported from China and if the Chinese Yuan per Indian rupee falls, then the importers enjoy decreased cost advantage over the Indian company. This shows, that the companies not having any direct link to the forex do get affected by the change in the foreign currency. Foreign currency exposures are generally categorized into the following three distinct types: transaction (short-run) exposure, economic (long-run) exposure, and translation exposure.

FOREIGN EXCHANGE RISK MANAGEMENT Exchange rate volatility is unpredictable since there are so many factors that affect the movement of the exchange rates i.e. economic fundamental, monetary policy, fiscal policy, global economy, speculation, domestic and foreign political issues, market psychology, rumors, and technical factors. The exchange rate volatility poses a risk, called foreign exchange risk or currency risk, to business sector in particular, the importers and exporters or those ones who associate with international businesses. Although businesses could not control the fluctuation of the exchange rates but they can manage the risk by using proper hedging tools like Forward, Futures, and Options, in order to manage their revenues and costs more efficiently.

LIST OF BANKS WITH THEIR NOSTRO ACCOUNTS WITH MUMBAI OVERSEAS BRANCH SL NO.

NOSTRO ACCOUNT NO

BANK NAME

CURRENCY

CURRENCY DETAILS

BANK'S SHORT FORM

1

5

ANZ BANKING GROUP MELBOURNE

AUD

AUSTRALIAN DOLLAR

ANZBAN MEL

2

16

COMMONWEALTH BKOF AUSTRALIA

AUD

AUSTRALIAN DOLLAR

CWEALT SYD

3

6

TORONTO DOMINION BANK TORONTO

CAD

CANADIAN DOLLAR

TORONT TOR

4

7

UNION BANK OF SWITZERLAND ZURICH

CHF

SWISS FRANC

UBSZU ZUR

5

8

DN DANSKE BANK COPENHAGEN

DKK

DANISH KRONE

DENSK COP

6

9

COMMERZ BANK DUSSELDORF

EUR

EURO

COMRZ DUS

7

36

EUR

EURO

UNICRE MIL

8

35

UNICREDITO ITALIANO MILANO STANDARD CHARTERED BANK FRANKFURT

EUR

EURO

STCHB FRA

9

27

BANK OF INDIA PARIS EURO ACCOUNT

EUR

BOI PAR

10

15

NATIONAL WESTMINISTER BANK PLC

GBP

NATWES LON

11

10

BANK OF INDIA LONDON GBP

GBP

EURO GREAT BRITAIN POUND GREAT BRITAIN POUND

12

11

BANK OF INDIA HONG KONG

HKD

HONG KONG DOLLAR

BOI HOK

13

12

BANK OF INDIA TOKYO

JPY

JAPANESE YEN

BOI TOK

14

37

HSBC BERHAD MALAYSIA

MYR

MALAYSIAN RINGGIT

HSBCMY KUA

15

30

DEN NORSKE BANK OSLO

NOK

16

24

BANK OF NEWZEALAND WELLINGTON

NZD

NORWEGIAN KRONE NEWZEALAND DOLLAR

17

13

SKANDINAVISKA ENSKILDA BANKEN

SEK

SWEDISH KRONA

DNORSK OSL BONZLD WELL SKANDI STKM

18

31

BANK OF INDIA SINGAPORE

SGD

SINGAPORE DOLLAR

BOI SIN

19

4

CITI BANK NA NEW YORK

USD

CITI NY

20

45

BANK OF CEYLON (SRI LANKA)

ACU

US DOLLAR ASIAN CURRENCY UNIT

BCEYLK

21

34

J P MORGAN CHASE NY

USD

US DOLLAR

JPCHASE NY

22

26

BANK OF INDIA NEW YORK ACCOUNT

USD

US DOLLAR

BOI NY

23

50

BANK OF INDIA NAIROBI

KES

KENYAN SHILLING

BOI NAR

24

14

DEUSTCHE BANK TRUST CO NEW YORK

USD

US DOLLAR

DBT NY

25

74

BANK OF NEW YORK, NEW YORK

USD

US DOLLAR

BONY NY

26

75

WELLS FARGO BANK, N.A.

USD

US DOLLAR

WELLS NY

27

83

STANDARD CHARTERED BANK, NEW YORK

USD

STCHB NY

28

89

BANK OF INDIA, NEW ZEALAND

NZD

US DOLLAR NEWZEALAND DOLLAR

29

90

DEUSTCHE BANK, FRANFURT

EUR

EURO

DEUT FF

BOI LON

BOI NZ

SWIFT OUTWARD MESSAGE TYPES SWIFT CODES

MESSAGE

MT 102-

Multiple Customer Credit Transfer

MT 103-

Single Customer Credit Transfer

MT 110-

Advice of Cheque/Cheques

MT 111-

Request for Stop Payment of A Cheque

MT 191-

Request for Payment of Charges, Interest and Other Expenses

MT 202-

General Financial Institution Transfer

MT 400-

Advice of Payment

MT 410-

Acknowledgement

MT 412-

Advice of Acceptance

MT 416-

Advice of Non-Payment & Sol; Non-Acceptance

MT 420-

Tracer

MT 422-

Advice of Fate and Request for Instructions

MT 430-

Amendment of Instructions

MT 491-

Request for Payment of Charges, Interest and Other Expenses

MT 700-

Issue of a Documentary Credit

MT 705-

Pre-Advice of a Documentary Credit

MT 707-

Amendment to a Documentary Credit

MT 710/711-

Advice of a Third Bank’s Documentary Credit

MT 720/722-

Transfer of a Documentary Credit

MT 730-

Acknowledgement

MT 732-

Advice of Discharge

MT 734-

Advice of Refusal

MT 740-

Authorisation to Reimburse

MT 742-

Reimbursement Claim

MT 747-

Amendment to an Authorisation to Reimburse

MT 750-

Advice of Discrepancy

MT 752-

Authorisation to Pay, Accept or Negotiate

MT 754-

Advice of Payment & Sol; Acceptance & Sol; Negotiation

MT 756-

Advice of Reimbursement or Payment

MT 760-

Guarantee

MT 767-

Guarantee Amendment

MT 791-

Request for Payment of Charges, Interest and Other Expenses

MT 900-

Confirmation of Debit

MT 910-

Confirmation of Credit

MT 950-

Statement Message

MT 999-

Free Format Message

Ref. No.:

2017/18/55

Date:

ZONE:

BHUBANESWAR

BRANCH:BHUBANESWAR

Beneficiary : RAM’S ASSORTED COLD STORAGE CR: Applicant: OKAYA AND CO LTD REQUEST FOR EXPOSURE LIMIT OF ON

USD 186,300.00

Mitsubishu UFJ Financial Group

JAPAN

RATE 72.00

APPRX

1.34 Cr.

BANK OF TOKYO is subsidiary to the extent of 100% UPTO

19-Aug-18

ZONE REF.: The zone seeks exposure limit of

USD 186300

APPRX.

Rs. 1.34 Cr.

We propose to meet the requirement out of limits available with us. We hereby the position of exposure on the bank is as under: (Rs in Crore) A

Exposure limit held with us under A category

1400.00

B

Exposure sanctioned so far

3.78

C

Exposure expired

2.78

D

Balance available with us

E

Present request

F

Net Balance available after allocation

1399.00 1.34 1397.66

Approval from credit angle has to be obtained by Zone/Branch at the appropriate level. As per the Bank Exposure Policy on Foreign Banks approved by the Board of …………………. General Manager is empowered to approve the exposure. Please be guided by the instructions contained in Branch Circular & Branch Circular No…………………. as per which branches are advised NOT to discount/ negotiate bills under I/Cs (eve in case where IC is restricted to our Bank) to a non-constituent borrower of non constituent member of consortium/multiple banking arrangement. Designated Branches are instructed to strictly adhere to instructions issued in Br……………….. for due diligence, verification of genuineness of IC etc. for non-constituent borrowers. In the case of DA bills, purchasing/discounting/negotiating should be undertaken only after receipt of acceptance from the IC opening bank. Please ensure availability of matching country exposure limit with the branch.

Re: Exposure of Indian Banks – Public & Private Sector And international Banks – Negotiation of bills Format for LC transaction ANNEXURE I 1 2 3

4

Name of the Country (A)

Name of the Bank on whom exposure is sought

(B) (A) (B)

SWIFT code of the bank Amount of exposure in foreign currency Amount of exposure in INR Details of LC L/C No. LC issuance date / LC amendment date If amended: Mention the amended details Tenor (Also mention whether DA/DP) L/C expiry date IN case LC has expired and acceptance has been received from LC issuing bank (PI mention the due date of payment) Reimbursing bank Date up to which exposure is required

(i) (ii) (iii) (iv) (v) (vi) (vii)

5 (i)

Name of the Applicant of LC

(ii)

Name of Beneficiary

Japan BANK OF TOKYO-MISTIBUSHI UFJ LTD. BOTKJPJXXX $ 1,86,300.00 Rs. 1,27,00,000/- (Approx) S-321-2018087 22.06.2018 N/A AT SIGHT 05.08.2018 N/A BOTKU33XXX 19.08.2018 OKAYA AND CO LTD. SHINJUKU TOKYO JAPAN M/s RAM’S ASSORTED COLD STORAGE LTD. BHUBANESWAR, ODISHA

In case of borrowers – Credit Rating Asset Code, Borrower Risk Grade & conduct of the A/c In case of beneficiary being a Non-Constituent Borrower or Non-Constituent Member of a (iv) N/A consortium/multiple banking arrangement:- Refer Br. Cr. 105/169 dt. 27.01.2012 (i) Present outstanding exposure on the bank NIL Total outstanding exposure taken on the beneficiary for 7 (ii) INR 20.40 Cr. all transactions of FBN and IBN (iii) Past experience with the bank SATISFACTORY Name & contact No. of officer concerned who may 8 contacted in case of query. All previous bills negotiated for this customer/beneficiary are realized on /before due date 1. We seek approval” A) For exposure as sought by us for the concerned Overseas Bank. B) To permit us to negotiate the export bill. 6

(iii)

Name of the Bank Exposure Allotted to ZO by HO RMD: Preset O/s of Exposure

BANK OF TOKYOMITSUBISHI UFJ:LTD. NIL NIL

Proposed Exposure Total outstanding after proposed Exposures Delegation for approval

Rs 1.27 Crore Rs 1.27 Crore HO, RMD

NEW PURPOSE CODES FOR REPORTING FOREX TRANSACTIONS A. PAYMENT PURPOSES Gr. No. 00

Purpose Group Name Capital Account

Purpose Code S0001 S0002 S0003 S0004 S0005 S0006 S0007 S0008 S0009 S0010 S0011 S0012 S0013 S0014 S0015 S0016 S0017

01

Imports

02

Transportation

S0018 S0101 S0102 S0103 S0104 S0201 S0202 S0203 S0204 S0205 S0206 S0207 S0208 S0209 S0210 S0211 S0212 S0213

Description Indian investment abroad -in equity capital (shares) Indian investment abroad -in debt securities Indian investment abroad -in branches & wholly owned subsidiaries Indian investment abroad -in subsidiaries and associates Indian investment abroad -in real estate Repatriation of Foreign Direct Investment in India- in equity shares Repatriation of Foreign Direct Investment in India- in debt securities Repatriation of Foreign Direct Investment in India- in real estate Repatriation of Foreign Portfolio Investment in India- in equity shares Repatriation of Foreign Portfolio Investment in India- in debt securities Loans extended to Non-Residents Repayment of long & medium term loans with original maturity above one year received from Non-Residents Repayment of short term loans with original maturity upto one year received from Non-Residents Repatriation of Non-Resident Deposits (FCNRB/NRERA etc) Repayment of loans & overdrafts taken by ADs on their own account. Sale of a foreign currency against another foreign currency Purchase of intangible assets like patents, copyrights, trade marks etc. Other capital payments not included elsewhere Advance payment against imports Payment towards imports- settlement of invoice Imports by diplomatic missions Intermediary trade Payments for surplus freight/passenger fare by foreign shipping companies operating in India. Payment for operating expenses of Indian shipping companies operating abroad. Freight on imports – Shipping companies Freight on exports – Shipping companies Operational leasing (with crew) – Shipping companies Booking of passages abroad – Shipping companies Payments for surplus freight/passenger fare by foreign Airlines companies operating in India. Operating expenses of Indian Airlines companies operating abroad Freight on imports – Airlines companies Freight on exports – Airlines companies Operational leasing (with crew) – Airlines companies Booking of passages abroad – Airlines companies Payments on account of stevedoring, demurrage, port handling charges etc.

Gr. No. 03

Purpose Group Name

04

Communication Services

05

Travel

Construction Services

Purpose Code S0301 S0302 S0303 S0304 S0305 S0306 S0401

Description

S0402 S0403 S0404 S0501

Courier services Telecommunication services Satellite services Construction of projects abroad by Indian companies including import of goods at project site Payments for cost of construction etc. of projects executed by foreign companies in India. Payments for Life insurance premium Freight insurance – relating to import & export of goods Other general insurance premium Reinsurance premium Auxiliary services (commission on insurance) Settlement of claims Financial intermediation except investment banking – Bank charges, collection charges, LC charges, cancellation of forward contracts, commission on financial leasing etc. Investment banking – brokerage, under writing commission etc. Auxiliary services – charges on operation & regulatory fees, custodial services, depository services etc. Hardware consultancy/implementation

S0502 06

Insurance Services

07

Financial Services

S0601 S0602 S0603 S0604 S0605 S0606 S0701

S0702 S0703 08

Computer & Information Services

S0801 S0802 S0803 S0804 S0805 S0806

09

Royalties & License Fees

S0901 S0902

10

Other Services

Business

S1001 S1002 S1003 S1004 S1005 S1006 S1007 S1008 S1009 S1010

Remittance towards Business travel. Travel under basic travel quota (BTQ) Travel for pilgrimage Travel for medical treatment Travel for education (including fees, hostel expenses etc.) Other travel (international credit cards) Postal services

Software consultancy / implementation Data base, data processing charges Repair and maintenance of computer and software News agency services Other information services- Subscription to newspapers, periodicals Franchises services – patents, copyrights, trade marks, industrial processes, franchises etc. Payment for use, through licensing arrangements, of produced originals or prototypes (such as manuscripts and films) Merchanting services –net payments (from Sale & purchase of goods without crossing the border) Trade related services – commission on exports / imports Operational leasing services (other than financial leasing) without operating crew, including charter hire Legal services Accounting, auditing, book keeping and tax consulting services Business and management consultancy and public relations services Advertising, trade fair, market research and public opinion polling service Research & Development services Architectural, engineering and other technical services Agricultural, mining and on–site processing services – protection against insects & disease, increasing of harvest yields, forestry

Gr. No.

11

Purpose Group Name

Personal, Cultural & Recreational services

Purpose Code S1011 S1012 S1013 S1019 S1101

S1102

12

13

Govt. not included elsewhere (G.n.i.e.) Transfers

S1201 S1202 S1301 S1302 S1303 S1304

S1305

14

Income

S1306 S1401 S1402 S1403 S1404 S1405

15

Others

S1406 S1407 S1501 S1502 S1503 S1504

Description services, mining services like analysis of ores etc. Payments for maintenance of offices abroad Distribution Services Environmental Services Other services not included elsewhere Audio-visual and related services – services and associated fees related to production of motion pictures, rentals, fees received by actors, directors, producers and fees for distribution rights. Personal, cultural services such as those related to museums, libraries, archives and sporting activities; fees for correspondence courses abroad. Maintenance of Indian embassies abroad Remittances by foreign embassies in India Remittance by non-residents towards family maintenance and savings Remittance towards personal gifts and donations Remittance towards donations to religious and charitable institutions abroad Remittance towards grants and donations to other governments and charitable institutions established by the governments. Contributions/donations by the Government to international institutions Remittance towards payment / refund of taxes. Compensation of employees Remittance towards interest on Non-Resident deposits (FCNRB/NRERA/ NRNRD /NRSR etc.) Remittance towards interest on loans from Non-Residents (ST/MT/LT loans) Remittance of interest on debt securities –debentures / bonds /FRNs etc. Remittance towards interest payment by ADs on their own account (to VOSTRO a/c holders or the OD on NOSTRO a/c.) Repatriation of profits Payment / repatriation of dividends Refunds / rebates / reduction in invoice value on account of exports Reversal of wrong entries, refunds of amount remitted for non-exports Payments by residents for international bidding Notional sales when export bills negotiated/ purchased/ discounted are dishonored/ crystallized/ cancelled and reversed from suspense account

NEW PURPOSE CODES FOR REPORTING FOREX TRANSACTIONS B. RECEIPT PURPOSES Gr. No. 00

Purpose Group Name Capital Account

Purpose Code P0001 P0002 P0003 P0004 P0005 P0006 P0007 P0008 P0009 P0010 P0011 P0012 P0013 P0014

P0015

P0016 P0017 P0018 01

Exports (of Goods)

P0101

P0102

P0103 P0104 P0105 P0106 P0107 02

Transportation

P0201 P0202 P0205 P0207

Description Repatriation of Indian investment abroad in equity capital (shares) Repatriation of Indian investment abroad in debt securities. Repatriation of Indian investment abroad in branches & wholly owned subsidiaries Repatriation of Indian investment abroad in subsidiaries and associates Repatriation of Indian investment abroad in real estate Foreign direct investment in India in equity Foreign direct investment in India in debt securities Foreign direct investment in India in real estate Foreign portfolio investment in India in equity shares Foreign portfolio investment in India in debt securities including debt funds Repayment of loans extended to Non-Residents Long & medium term loans with original maturity above one year from Non-Residents to India Short term loans with original maturity upto one year from Non-Residents to India Receipts o/a Non-Resident deposits (FCNRB/NRERA etc.) ADs should report these even if funds are not “swapped” into Rupees. Loans & overdrafts taken by ADs on their own account. (Any amount of loan credited to the NOSTRO account which may not be swapped into Rupees should also be reported) Purchase of a foreign currency against another currency. Sale of intangible assets like patents, copyrights, trade marks etc. by Indian companies Other capital receipts not included elsewhere Value of export bills negotiated / purchased/discounted etc. (covered under GR/PP/SOFTEX/EC copy of shipping bills etc.) Realisation of export bills (in respect of goods) sent on collection (full invoice value) Advance receipts against export contracts, which will be covered later by GR/PP/SOFTEX/SDF Receipts against export of goods not covered by the GR/PP/SOFTEX/EC copy of shipping bill etc. Export bills (in respect of goods) sent on collection. Conversion of overdue export bills from NPD to collection mode Realisation of NPD export bills (full value of bill to be reported) Receipts of surplus freight/passenger fare by Indian shipping companies operating abroad Purchases on account of operating expenses of Foreign shipping companies operating in India Purchases on account of operational leasing (with crew) – Shipping companies Receipts of surplus freight/passenger fare by Indian Airlines companies operating abroad.

Gr. No.

Purpose Group Name

Purpose Code P0208 P0211 P0213

03

04

05 06

Travel

P0301

Communication Services

Construction Services Insurance Services

Financial Services

FC surrendered by returning Indian tourists. Postal services

P0402 P0403 P0404 P0501 P0601 P0602

Courier services Telecommunication services Satellite services Receipts for cost of construction of services projects in India Receipts of life insurance premium Receipts of freight insurance – relating to import & export of goods Receipts on account of other general insurance premium Receipts of Reinsurance premium Receipts on account of Auxiliary services (commission on insurance) Receipts on account of settlement of claims Financial intermediation except investment banking – Bank charges, collection charges, LC charges, cancellation of forward contracts, commission on financial leasing etc. Investment banking – brokerage, under writing commission etc. Auxiliary services – charges on operation & regulatory fees, custodial services, depository services etc. Hardware consultancy/implementation

P0606 P0701

P0702 P0703 08

Computer & P0801 Information Services P0802 P0803 P0804 P0805 P0806

09

P0807 Royalties & License P0901 Fees P0902

10

Other Services

Receipt on account of operating expenses of Foreign Airlines companies operating in India Purchases on account of operational leasing (with crew) – Airlines companies Receipts on account of other transportation services (stevedoring, demurrage, port handling charges etc). Purchases towards travel (Includes purchases of foreign TCs, currency notes etc over the counter, by hotels, hospitals, Emporiums, Educational institutions etc. as well as amount received by TT/SWIFT transfers or debit to Non-Resident account).

P0308 P0401

P0603 P0604 P0605

07

Description

Business P1001 P1002 P1003 P1004

Software consultancy/implementation (other than those covered in SOFTEX form) Data base, data processing charges Repair and maintenance of computer and software News agency services Other information services- Subscription to newspapers, periodicals, etc. Off site Software Exports Franchises services – patents,copy rights, trade marks, industrial processes, franchises etc. Receipts for use, through licensing arrangements, of produced originals or prototypes (such as manuscripts and films) Merchanting Services – net receipt (from sale and purchase of goods without crossing the border). Trade related services – Commission on exports/imports. Operational leasing services (other than financial leasing and without operating crew) including charter hire Legal services

Gr. No.

Purpose Group Name

Purpose Code P1005 P1006 P1007 P1008 P1009 P1010

11

P1011 P1012 P1013 P1019 Personal, Cultural & P1101 Recreational services

P1102

12

13

Govt. not included P1201 elsewhere (G.n.i.e.) P1203 Transfers

P1301 P1302 P1303 P1304

14

Income

P1306 P1401 P1403 P1404 P1405

15

Others

P1406 P1407 P1501 P1502 P1503

Description Accounting, auditing, book keeping and tax consulting services Business and management consultancy and public relations services Advertising, trade fair, market research and public opinion polling services Research & Development services Architectural, engineering and other technical services Agricultural, mining and on –site processing services – protection against insects & disease, increasing of harvest yields, forestry services, mining services like analysis of ores etc. Inward remittance for maintenance of offices in India Distribution Services Environmental Services Other services not included elsewhere Audio-visual and related services – services and associated fees related to production of motion pictures, rentals, fees received by actors, directors, producers and fees for distribution rights. Personal, cultural services such as those related to museums, libraries, archives and sporting activities and fees for correspondence courses of Indian Universities/Institutes Maintenance of foreign embassies in India Maintenance of international institutions such as offices of IMF mission, World Bank, UNICEF etc. in India. Inward remittance from Indian non-residents towards family maintenance and savings Personal gifts and donations Donations to religious and charitable institutions in India Grants and donations to governments and charitable institutions established by the governments Receipts / Refund of taxes Compensation of employees Inward remittance towards interest on loans extended to nonresidents (ST/MT/LT loans) Inward remittance of interest on debt securities –debentures / bonds /FRNs etc. Inward remittance towards interest receipts of ADs on their own account (on investments.) Repatriation of profits to India Receipt of dividends by Indians Refunds / rebates on account of imports Reversal of wrong entries, refunds of amount remitted for non-imports Remittances (receipts) by residents under international bidding process.

NEW PURPOSE CODES FOR REPORTING FOR FOREX TRANSACTIONS C. COVER PAGE PURPOSES Gr. No. 99

Purpose Group Name Cover Page Total

Purpose Code P0091 P0092 P0093 P0094 P0095

P0100 P0144 P1590 P1591 S0091 S0092 S0093 S0094 S0095 S0144 S0190 S0191 S1590 S1591 Cover Page Balance

P2088 P2199 S2088 S2199

Description Purchase from Reserve Bank of India (Currency-wise Totals) Purchase from other ADs in India (Currency-wise Totals) Purchase from Overseas banks & correspondents (Currencywise Totals) debit from the vostro a/c of overseas bank or correspondents (Country-wise Totals) Aggregate Purchases at Branches (Currency-wise Totals) Exports (Totals) {N/P/D + Collection bills Realised during Fortnight + Advance received during Fortnight} (Purchases from Public against exports (Currency-wise Totals)} Purchases from Public against third country exports (Currencywise Totals) receipts below Rs. 5,00,000 (Currency-wise Totals) Non-Exports equivalent & above Rs. 5,00,000 Sales to Reserve Bank of India (Currency-wise Totals) Sales to other ADs in India (Currency-wise Totals) Sales to Overseas banks & correspondents (Currency-wise Totals) credit to the vostro a/c of overseas bank or correspondents (Country-wise Totals) Aggregate Sales at Branches (Currency-wise Totals) Sales to Public against Imports into other countries (Currencywise Totals) Imports below Rs. 500000 (Currency-wise Totals) Imports equivalent & above Rs. 5 Lakhs (Currency-wise Totals) Non-Imports payment below Rs 500000 (Currency-wise Totals) Non-Imports equivalent & above Rs. 5 Lakhs (Currency-wise Totals) Opening Balance (Debit Balance in Mirror/Debit Balance in Vostro) Closing Balance (Debit Balance in Mirror/Debit Balance in Vostro) Opening Balance (Credit Balance in Mirror/Credit Balance in Vostro) Closing Balance (Credit Balance in Mirror/Credit Balance in Vostro)