1.1.

Introducton
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for small fees. Today, however, much of this business has moved on to more efficient electronic systems. Foreign Exchange Trading or FX Trading, clients are able to hedge against, or speculate upon, changes in the exchange rate of two currencies. For example, a speculator can long EUR/USD in foreign exchange market in order to profit from capturing the appreciation of Euro against the U.S. Dollar. Foreign exchange services provide an opportunity for clients to trade FX. Foreign Exchange Trading is done on the foreign exchange market. Prime Bank operates it foreign exchange business in larger arena and it is one of the most reputed bank in the Bangladesh earns a huge amount of money in year to year. In foreign exchange business Prime Bank leads the country in well manner. The operation of Prime bank in terms of foreign exchange includes-remittance, letter of credit, export- import business and many other ancillary services related to foreign exchange. In according to that I just focus on foreign exchange operation of prime bank and try to develop how they perform, whats the central bank role in foreign exchange operation for the commercial banks to a great extent. And i have also focused on analytical tools how their growth of foreign exchanges business which shows that performance analysis of Prime bank.

1.2. Origin of the Report

This report is originated after completing the BBA program from Department of Marketing under Dhaka University. During the internship a student has to undertake a management problem or arena of investigation of the organization for in depth study. This report is the outcome of the assigned internship suggested by the Department of Marketing, University of Dhaka. I have done my internship in Prime Bank Ltd. (MoulviBazar Branch) and the title of my internship is An Analysis of Foreign Exchange Operation of Prime Bank limited

1.3.Problem Statement

Complexity in the operation it foreign exchange department may hamper the export import transactions as well as the functions of the general banking which will reduce the profit of the bank and the foreign exchange earnings of a country.I select foreign exchange operation of prime bank limited to done my assign task.

1.4.Objective of the Study

My Broad objective of this report is to meet the partial requirements for the fulfillment of BBA program.The other objectives of my report are given below
To analyze the performance of the Moulvibazar branch and the Prime Bank as a

whole. To focus on the brief description of foreign trade.

To know the overall import business position of prime bank.

To find out the import fluctuation of prime bank in the last five years.
To know the overall export business position of prime bank.

To find out the export fluctuation of prime bank in the last five years.
To know the overall remittance business position of prime bank.

To find out the remittance fluctuation of prime bank in the last five years. To assess the performance of the foreign exchange activities in comparison with other banks. To measure the performance of the banks through various analysis.
To suggest remedial measure for more development of Prime Bank service.

1.5.Rationale of the Study

Foreign exchange is a proactive and lucrative zone of bank transactions. It is exposed to uncertainty to various extents. The risks inherent in foreign exchange business, particularly in running open foreign exchange positions, have been heightened in recent years by the increased instability of exchange rates. Still it is considered as one of the income generating sources of banks due to more involvement in international trade now-a-days and globalization trend. Therefore, as one of the leading third generation commercial banks Prime Bank Limited, emphasized its foreign exchange department as an income generating source. Prime Bank virtually functions corporate Banking and advisory services to institutional clients in our country, large scale retail portfolios along with wholesale banking. This report intends to explore the growing and expanded business trend of foreign exchange department of the bank over the last few years and how the bank best manages its risk exposures.

1.6. Scope of the Report

The report is highlighting the major functional area of foreign exchange department and procedure of import, export & remittance of Prime Bank Ltd. Try to cover the whole process of letter of credit at the same time export,import and remittance collection procedure done by the banks. I have done some mathematical analysis(Time series,Trend analysis,Multiple regression etc.) to find out the total export, import and remittance position of the bank.also try to compare the prime bank ltd. Foreign exchange position with five leading banks in the country.

1.7. Methodology of the Study

For preparing the report I have used both primary data and secondary data. The Trend Analysis, Multiple Regression, Time Series Analysis and Growth% Analysis are used as a mathematical tools.

Sources of data For collecting the required data, I have used different sources or methods like the following: Primary Sources
Personal Interview Face-to-face conversation and in depth interview with the

respective officers of the branch.

Personal observation Observing the procedure of banking activities of FX Dept.

Practical work exposures on different areas of the branch. Informal conversation with the clients or customers. Relevant documents related to the study as provided by the officers. Secendary Sources Foreign Exchange Operation Manual Bangladesh Bank Manual Annual Report of Prime Bank Ltd. and few other banks. Books, Journals, Newspapers, Reports etc. Website of Prime Bank LTD.. Website of Bangladesh Bank. Website of Export Promotion Bureau.

Statistical Tools: After collecting the data I have used several statistical tools to analyze the data and prepare the analytical part of my report. The lists of statistical tools I have used in this report are given hereunder: Trend Analysis Time Series Analysis Multiple Regression Growth% Analysis.

Computer Program: Microsoft Word Microsoft Excel SPSS-16

1.7.Limitations of the Study

There were some problems while I conducted the orientation program. A wholehearted effort was applied to conduct the program and to bring a reliable and fruitful result. In spite of having the wholehearted effort, there exit some limitations, which acted as a barrier to conduct the program. The limitations are:

The study was limited only to the Prime Bank Ltd Moulvibazar Another Problem was time constraints.This time is not enough for Sufficient data for prepare a report is not available. The employees of the bank are so much busy so they cannot provide

Branch.

complete study.

me to give information about the foreign exchange such as import, export etc.
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Company Overview
Prime Bank Ltd is a fast growing private bank. In Prime Bank has focused for providing high quality customer service at a very competitive price. Prime Bank Ltd efforts are directed at diversification of product and service. Offering customers a wide variety of choices and options have remained cornerstone of their business strategy. In this backdrop Prime Bank Ltd has launched credit card business in collaboration with a global player like Master Card. Master Card is one of the top 20 brands in the world. An alliance with these as its Principal Member is definitely a big advantage from marketing point of view. Policy planners of the bank through that large majority mainly in the cities & towns would prefer payment through usage of plastics in the form of credit card. A market with upscale customers existed for card. Accordingly in December 1999, Master Card credit card was launched bringing new dimension to their product line. Since credit card operation required real time on line connectively the bank made substantial investment in the technology and other infrastructure in related areas. High quality international software and top of the line hardware was deployed. Key person to manage the strategic operations was trained home and abroad. With initial teething problems over, the bank successfully issued local and international card within a record time. Since journey was for steady and sustainable growth.

2.1.Principal Activities
The principal activities of the Bank are banking and related businesses. The banking businesses include deposits taking, cash withdrawal, extending credit to corporate organization, retail and small and medium enterprises, trade financing, project financing, lease and hire purchase financing, issuance of local and international credit cards etc. The mode of banking included conventional and Islamic Banking. The services are provided through both traditional and modern products. It also performs investment banking and advisory services through Merchant Banking and Investment Division under the license issued by Securities and Exchange Commission, Dhaka, Bangladesh. Its Subsidiary at
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Singapore is engaged in providing remittances facilities to expatriate Bangladeshis. Through its Off shore Banking Units it provides banking business involving Non Resident foreign currency denominated assets and liabilities.

April 1995 June 1995 Sept 1995 Dec 1995 Jan Feb Nov 1999 2000 2003

Incorporation of the Company Commencement of core business of Prime bank Establishment of branch in Chittagong, the main port city Islamic banking operation Listed with both the bourses of Bangladesh viz Dhaka stock Exchange and Chittagong stock Exchange. Registered as Merchant Banker with the Security Exchange Commission and starting its Investment banking and Advisory services Became primary dealer for busing and selling securities under the license issued by Bangladesh Bank Opened its first fully owned subsidiary - Prime Exchange Co. Pte Ltd. to offer remittance service to Bangladeshi Nationals living in Singapore PBL opened its first Offshore Banking unit at DEPZ Won ICAB Award for Best Bank in Bangladesh and SAFA Bronze Award for best presented accounts of 2007. Introduce of ATM in the country Decided to sponsor a Mutual Fund of "Prime Bank 1st ICB Mutual Fund" to the tune of Tk. 100 crore and will subscribe at least 20% of the fund Credit Rating Information and Services Limited (CRISL) has awarded "AA" rating in the long-term and ST-1 rating in the short-term for the year 2008. Approval from the SEC. 3. Merchant Banking and Investment Division of the Bank shall be converted into a subsidiary company in the name and style "Prime Bank Investment Ltd."

8th July 2006 June 2007 April 2007 March 2008 Jan 2009 June 2009 Dec 2009

2.2. Network of Branches

PBL opened 14 branches at important hubs of the country in 2009; PBL The opening of branches strengthened the network and opened opportunity growth. The present status of the branch network is Network of branches Classification Urban Rural Total 2009 62 22 84 2008 52 18 70 Source: Company Annual Report

2.3. Corporate VisionMission

Prime Vision To be the best Private Commercial Bank in Bangladesh in terms of efficiency, capital adequacy, asset quality, sound management and profitability having strong liquidity. Prime Mission To build Prime Bank Limited into an efficient, market driven, customer focused institution with good corporate governance structure. Continuous improvement in our business policies, procedure and efficiency through integration of technology at all levels.

3.1. Foreign Exchange

As more than one currency is involved in foreign trade, it gives rise to exchange of currencies which is known as Foreign Exchange. The term 'Foreign Exchange' has three principal meanings.

Firstly it is a term used referring to the currencies of other countries in terms of any single one currency. To a Bangladeshi, Dollar, Pound Sterling, etc. are foreign currencies and as such foreign exchanges.

Secondly, the term also commonly refer to some instruments used in international trade, such as bill of exchange, drafts, travelers cheque and other means of international remittance.

Thirdly, the term foreign exchange is also quite often referred to the balance in foreign currencies held by a country.

Foreign Exchange refers to the process or mechanism by which the currency of one country is converted into the currency of another country. The exchange of the currency of one country for that of another country Donal .A Ball

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3.2. Foreign Trade & its Activities

Foreign trade can be easily defined as a business activity, which crosses national boundaries. These may be between parties or government ones. Trade among nations is a common occurrence and normally benefits both the exporter and importer. In many countries, international trade accounts for more than 20% of their national incomes.

Foreign trade can usually be justified on the principle of comparative advantage. According to this economic principle, it is economically profitable for the country to specialize in the production of that commodity in which the producer country has the grater comparative advantage and to allow the other country to produce that commodity in which it has the lesser comparative advantage. It includes the spectrum of goods, services, investment, technology transfer etc. this trade among various countries calls for lose linkage between the parties dealing in trade. The banks, which provide such transactions, are referred to as rendering international banking operations. International trade demands a flow of goods from seller to buyer and of payment from buyer to seller.

There are three kinds of foreign exchange transaction: 1. 2. 3. Export Import Remittance

A flow-chart showing the flow of functions regarding foreign exchange is shown in the next page.

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Foreign Exchange

Import

Export

L/C opening

Payment against Document

Export against Advising

Reshipment Finance

Loan against imported merchandised

Loan against trust receipt

Post Shipment Finance Export Certificate

Foreign Bills for collection

Inward Bills

Guarantee

Realization

Dealing Section

Remittance

Quoting rate of Exchange Guidance on rates trend to customer Travel

Forward Cover (Booking of Contract) Reconciliation

Outward remittance (FDD, MT,TT)

Inward Remittance

Returns

Issue and sale of foreign currency

Purchase of foreign currency

Returns to Bangladesh Bank

Other Returns

Figure: Functions of Foreign Exchange

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3.3. L/C Operation

Letter of credit commonly termed as L/C is defined as Credit Contract whereby the buyers bank committed (on behalf of the buyers) to place an agreed amount of money at the sellers disposal under some agreed conditions. Since the agreed conditions include amongst other things, the presentation of some specified documents, the letter of credit is called Documentary letter of credit. The Uniform Customs and Practices for Documentary Credit (UCPDC) published by International Chamber of Commerce (1993) publication no 500 define Documentary Credit:

Any arrangement however named or described whereby a bank (the issuing bank) acting at the request and on the instructions of a customs (the Applicant) or on its own behalf, is to make a payment to or to the order of a third party(the beneficiary) or is to accept and pay bills of exchange(Drafts)drawn by the beneficiary or Authorize another bank to effect such payment or to accept and pay such bills of exchange (Drafts) or Authorize another bank to negotiate against stipulated documents provide that terms and conditions are complied with.

3.3.1.Types of Documentary Letter of Credit:

Documentary letter of credit, basically, can be classified into two segments: a) Revocable letter of credit

b) Irrevocable letter of credit

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Revocable Letter of Credit: This type of letter of credit can be revoked or cancelled at any time without consent of, or notice to the beneficiary. As per article 8 (a) of UCPDC-500 A revocable credit may be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary.

In case of seller (beneficiary), revocable credit involves risk, as the credit may be amended or cancelled while the goods are in transit and before the documents are presented, or although presented before payments has been made. The seller would then face the problem of obtaining payment on the other hand revocable credit gives the buyer maximum flexibility, as it can be amended or cancelled without prior notice to the seller up to the moment of payment buy the issuing bank at which the issuing bank has made the credit available. In the modern banking the use of revocable credit is not widespread.

Irrevocable Letter of Credit: An irrevocable credit is a documentary credit, which cannot be revoked, varied or changed/amended or cancelled without the consent of all parties- buyer (Applicant), seller (Beneficiary), Issuing Bank, and Confirming Bank (in case of confirmed L/C). As per Article 9(a) of UCPDC 500, an irrevocable credit constitutes a definite undertaking of the Issuing Bank, provided that the stipulated documents are presented to the Nominated Bank or to the Issuing Bank and that the terms and conditions of the credit are complied with. Irrevocable Credit gives the seller greater assurance of payments, but he/she remains dependent on an undertaking of a foreign bank.

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3.3.2. DOCUMENTS USED IN L/C OPERATION:

Documents Name 1.Bill of Exchange: Bill of Exchange is one of the important negotiable instruments in the mercantile world and used as a vital document facilitating between settlement of payments and buyer/importer

Particulars in Document There are 3 parties: Drawer: The person who draws the bill. Drawee: The person on whom the bill is drawn. Payee: The person on whom the amount is payable Payment is made under the sales condition of L/C contract or

seller/exporter at home and abroad

1. Bill ofLading: A bill of lading is a document that is usually stipulated in a credit when the goods are dispatched by sea. It is evidence of a contract of carriage, is a receipt for the goods, and is a document of title to the goods. It also constitutes a document that is, or may be, needed to support an insurance claim. Bill of Lading includes A description of the goods in general terms not inconsistent with that in the credit. The name of the carrying vessel. Evidence that the goods have been loaded on board. The ports of shipment and discharge. The names of shipper, consignee and name and address of notifying party. Whether freight has been paid or is payable at destination. Original bills no. & issue date

3. Commercial Invoice:

Commercial Invoice include:

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A commercial invoice is the accounting document by which the seller charges the goods to the buyer.

Date, Name and address of buyer and seller Order or contract number, quantity and description of the goods, unit price and the total price.

Weight of the goods, number of packages, and shipping marks and numbers Terms of delivery & payment and Shipment details.

5. Inspection Certificate: This is usually issued by an independent inspection company located in the exporting 4.A certificate of origin: country certifying or describing the quality, It is a signed statement providing evidence specification or other aspects of the goods, as called for in the contract and/or the L/C. The of the origin of the goods. buyer who also indicates the type of inspection he wishes the company to undertake usually nominates the inspection company.

6. Packing List: This is a unique document and not

The list includes: Gross & net weight &Measurement

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combined with other document. This is a listing of the contents of each package, cartoon etc. and other relevant information.

No. of Packages differs with B/L. Not marked one fold as Original Not signed by the Beneficiary Shipping marks differ with B/L

7. Insurance Document: Insurance is a contract whereby the insurer is undertaking to indemnify the assured to the agreed manner and extent against fortuitous losses

Insurance document generally contains following information:

the

The name of the insurer or his agent, the ship/carrier and the assured The subject matter of insurance The time and/or voyage insured and peril(s) insured. Date, subscription& valuation

8. Proforma Invoice/Indent: Pro Forma Invoice/indent is the sale contract between seller and buyer in import- export business. There is slight difference between indent and Proforma invoice. The sales contract, which is direct correspondence between importer and exporter, is called Proforma invoice.

Proforma Invoice/ Indent contains: Name of the Beneficiary company Address of Beneficiary Mode of Payment and Payment terms and condition. Sales amount and price Types of goods. Bill number. Mode of transport.

3.3.3.ACCOUNTS RELATED TO FOREIGN EXCHANGE TRANSACTION:

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In L/C operation different accounts are maintained which are needed for foreign exchange transaction. These are:

NOSTRO ACCOUNT: Nostro account means our account with you. A Nostro account is a foreign currency account of a bank maintained its foreign correspondents abroad. For example, US Dollar Account of PBL maintained with Citibank, N.A, New York, USA is a Nostro account of PBL.

VOSTRO ACCOUNT: Vostro account means your account with us. The account maintained with foreign correspondent in a bank of a particular country is known as Vostro account. What is the Nostro account for a bank in a particular country is a Vostro account for the bank abroad maintaining the account thus the account of PBL with City Bank N.A, New York is regarded as its Nostro account held with Citi Bank, while Citi Bank N.A, New York regards it as a its Vostro account held for PBL.

LORO ACCOUNT: Loro account means their account with you. Account maintained by third party is known as Loro account; suppose PBL is maintaining an account with Citi Bank N.A, New York and at the same time Janata Bank is also maintaining a Nostro account with Citi Bank N.A, New York. From the point of view of PBL, Janata Banks account maintained with Citi Bank N.A New York is the Loro account.

3.3.4. PARTIES INVOLVED IN L/C OPERATION:

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Documentary credit substantially reduces payment related risks for both exporter and importer. So in the whole L/C operation there are many parties involved. The parties are given in a chart in the following page: Parties involving L/C 1. Importer/Applicant Description Importer wants to import goods from other countries. In terms of the Importers (Registration) Order-1981 no person can import goods into Bangladesh unless he is with the Chief Controller of Import And Export (CCI&E). He is also called applicant. The bank opened L/C on the importers application.

2. Issuing Bank/Opening Bank

The bank which opens L/C on behalf of the importer is called issuing bank. Issuing banks obligation is to make payment against presentation of documents drawn strictly as per terms of L/C.

3. Advising Bank

The bank through which the L/C is advise / forwarded to the beneficiary. It is situated in the beneficiarys country. The most important function of this bank is to make sure the beneficiary about the authenticity of the documents.

4.Beneficiary/Exporter/Seller

Beneficiary is the party in whose favor the L/C is issued. Usually he is the seller or exporter.

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5. Negotiating Bank

The bank that negotiates the bill of exporter drawn under the credit is known as negotiating bank. If the advising bank is also authorized to negotiate the bill drawn by the exporter, he becomes the negotiating bank.

6. Reimbursing Bank

The bank nominated in the credit by the issuing bank to make payment stipulated in the document, complying with the reimbursement bank. In reimbursing bank the issuing bank maintains its Nostro account.

Confirming bank is a bank that adds its confirmation to 7.Confirming bank the credit and it is done at the request of the issuing bank. It provides the credit report of the exporter of his country.

3.3.5.Mechanism for L/C opening:

The standard mechanism for opening L/C is shown through a flow-chart below:
Advising Bank (against of the issuing

Negotiating Bank (Exporter has an account with this bank)

Issuing Bank

bank)

Reimbursement Bank (The bank that debit the importers account)

Add confirming Bank (Confirmation of the L/C opening bank if wanted by the negotiation Bank)

Figure 3.2: Mechanism for L/C opening

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3.4. Import Business

The Letter of Credit Authorization Form (LCAF) is the form prescribed for the authorization of opening letter of credit/payment against import and used in lieu of import license. The authorized dealers are empowered Import means purchase of goods and services from the foreign countries into Bangladesh. Normally consumers, firms, industries and Government of Bangladesh import foreign goods / materials to meet their various necessities. So, in brief, we can say that import is the flow of goods and services purchased by economic agent staying in the country from economic agent staying abroad.

3.4.1. REGULATION OF IMPORT: Import of goods into Bangladesh is regulated by the Ministry of Commerce in terms of the Import and Export (Control) Act-1950 with Import Policy Order issued periodically and public notices issued time to time by the office of the Chief Controller of Import and Export (CCI&E). At present, it is regulated by the Import Policy (1997-2002), which was come into effect on June14, 1998. And Import Policy directs certain Import Procedure, which administers the whole activity.

3.4.2. STANDARD IMPORT PROCEDURE : As an Authorized Dealer, SJIBL, Main Branch is always committed to facilitate import of different goods into Bangladesh from the foreign countries. Import Section, which is under Foreign Exchange Department of the branch, is assigned to perform this job. And to serve its clients demand to import goods, it always maintains required formalities that are collectively termed as The Import Procedure are given in the next page.

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The importer must obtain Import Registration Certificate (IRC) from the CCI&E submitting the following papers: Up to date Trade License. Nationality and Asset Certificate. Tax Identification Number(TIN) VAT Registration Number In case of company, Memorandum & Articles of Association and Certificate of Incorporation. Bank Solvency Certificate etc. After that the importer has to collect a Performa Invoice/Indent or sales contract which will meet his demand. An indenter is the local agent. Other sources are: Step-2 Trade fair. Chamber of Commerce. Foreign Missions in Bangladesh

Step-1

Journals etc.
Step-3

After importer has to accept the terms and conduit Confirming bank ion of the Proforma Invoice/Indent. Take delivery of the goods and makes payment by foreign DD, MT, or TT at some specified date. Collection Method- Collection methods are either clean collection or documentary collection. Again, Documentary Collection may be Document against Payment(D/P) or Document against Acceptance(D/A). The collection procedure is the exporter Then the importer has to settle about the means of payment. They are: Cash in Advance- Importer pays full, partial or progressive payment by a foreign DD, MT or TT. After receiving payment, exporter will send the goods and the transport receipt to the importer. Importer will take delivery of the goods from the transport company. Open AccountExporter ships the goods and sends transport receipt to the importer. Importer will ships the goods and draws a draft/ bill on the buyer. The exporter submits the draft/bill (only or with documents) to the remitting bank for collection and the bank acknowledges this. Then the remitting bank sends the draft/bill (with or without documents) and a collection instruction letter to the collecting bank. Acting as an agent of the remitting bank, the collecting bank notifies the importer upon receipt of the draft. The title of goods is released to the importer upon full payment or acceptance of the draft/bill.

Step-4

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Step-4

Step-5

Letter of credit: Letter of credit is the well accepted and most commonly used means of payment. It is an undertaking for payment by the issuing bank to the beneficiary, upon submission of some stipulated documents and fulfilling the terms and conditions mentioned in the letter of credit. Requesting the concerned bank (importers bank /issuing bank) to open a L/C(irrevocable) on behalf of importer favoring the exporter/seller.

Fig: Import procedure

Import section deals with L/C opening and post import financing i.e. LIM & LTR. Now the procedure from opening L/C to disbursement against L/C is given below:

3.4.3 APPLICATION FOR OPENING L/C: At first, an importer will request banker to open L/C along with the following documents. An application Indent or Pro forma Invoice Import Registration Certificate (IRC) Taxpayers Identification Number (TIN) Insurance cover note with money receipt A bank account in MBL, Main Branch Membership of chamber of commerce

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3.4.4. DIFFERENT L/C APPLICATION FORMS: L/C Application Form is a sort of an agreement between customer and bank on the basis of which letter of credit is opened. MBL, Main Branch provides a printed form for opening of L/C to the importer. Special adhesive stamp of value Tk.150.00 is affixed on the form in accordance with Stamp Act. While opening, the stamp is cancelled. Usually the importer expresses his decision to open the L/C quoting the amount of margin in percentage. Usually the importer gives the following information Full name and address of the importer and the beneficiary Draft amount Availability of the credit by sight payment/acceptance/negotiation/deferred payment Time bar within which the documents should be presented Sales type (CIF/FOB/C&F) Brief specification of commodities, price, quantity, indent no. etc. Country of origin Bangladesh Bank registration number Import License/LCAF number IRC number, Account number, Documents number Insurance Cover Note / Policy number, date, amount Name and address of Insurance Company Whether the partial shipment is allowed or not Whether the transshipment is allowed or not Last date of shipment Last date of negotiation Other terms and conditions (if any) Whether the confirmation of the credit is requested by the beneficiary or not.

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3.4.5. PREPARATION OF L/C BY BANKER: Banks officer prepares L/C when above-mentioned forms are to be submitted by customer or importer. Before preparing L/C MBL officer scrutinizes the application in the following manner. a) The terms and conditions of the L/C must be complied with UCPDC 500 and Exchange Control & Import Trade Regulation. b) Eligibility of the goods to be imported. c) The L/C must not be opened in favor of the importer. d) Radioactivity report in case of food item.

Survey reports or certificate in case of old machinery is required. Bank of the importer is called L/C Issuing Bank. Then issuing bank inform its corresponding bank, called Advising Bank or Confirming Bank located in exporters country to advise and credit forward to the exporter and simultaneously officer makes L/C opening vouchers.
THE L/C CONFIRMING PROCESS

L/C Issuing Bank

Issue L/C & request Bankto Add Confirm

L/C Confirming

Exporter or L/C Beneficiary

Figure 3.3: L/C collection process

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3.4.5.1. FORWARDING DOCUMENTORY CREDIT: There are usually two banks involved in a documentary credit operation. The issuing bank and the advising bank which is usually a bank in the sellers country. The issuing bank asks another bank to advise or confirm the credit. If the 2 nd bank is simply advising the credit, it will mention that when it forwards the credit to seller, such a bank is under no commitment or obligation to pay the seller. If the advising bank is also confirming the credit, this mention that the confirming bank, regardless of any other consideration, must pay accept or negotiate without recourse to seller. Then the bank is called confirming bank also.

3.4.5.2. SUBMISSION OF NECESSARY DOCUMENTS: As soon as the seller/exporter receives the credit and is satisfied that he can meet its terms and conditions, he is in position to load the goods and dispatch them. The seller then sends the documents evidencing the shipment to the bank. Exporter will submit those documents in accordance with the terms and conditions as mentioned in L/C. Generally the documents observed in the foreign exchange department are: Bill of exchange Commercial invoice Bill of lading Certificate of origin Packing list Clean Report of Finding (CRF) Weight list Insurance cover note Pre-shipment certificate
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Clean Report Of Findings (CRF): This certificate is provided by the Pre Shipment Inspection (PSI) Concerns. The entire world has been brought under the three supervision of the three pre-shipment inspection concerns based on different territory. These are as follows: Intertek Testing Service Inspectorate Griffith Ltd. Bureau VERITAS

3.4.5.3. THE DOCUMENTS SENT TO THE ISSUING BANK: The negotiating bank carefully checks the documents provided by the exporter against the credit, and if the documents meet all the requirement of the credit, the bank will pay, accept, or negotiate in accordance with the terms and conditions of the credit. Then the bank sends the documents to the L/C opening bank. Negotiatin g Bank Sending L/C Documents

L/C Issuing Bank

MAKING THE PAYMENT OF FOREIGN BILLS: The L/C issuing bank getting the documents checks immediately and if they are in order and meet the credit requirements; it will arrange to make payment against L/C through reimbursement bank and will send the importer the document arrival notice.

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3.5.Export Business
Export & Exporter: Export means flow of goods and services produced within Bangladesh but purchase by economic agent i.e. individuals, firms, governments of other countries. The persons/Firms sales the goods & services to another country is called exporter. An exporter of a country having a trade relation with an importer of another country may not have enough money to conclude the deal. He may as such need finance from the Bank.

3.5.1. Export Policy of Bangladesh: Export policies formulated by the Ministry of Commerce, which provide the overall guideline and incentives for promotion of exports in Bangladesh. Export policies also set out commodity-wise annual target. It has been decided to formulate these policies to cover a five-year period to make them contemporaneous with the five-year plans and to provide the policy regime.The exportoriented private sector, through their representative bodies and chambers are consulted in the formulation of export policies and are also represented in the various export promotion bodies set up by the government.

3.5.2. Regulatory/Promotional organs of Export:

1. National Committee for Export: This committee is Headed by the Prime Minister and comprising Ministers of Foreign Affairs, Finance, Commerce, Industries, Planning, Jute and Textile. The committee will review the export situation and provide necessary direction & resolved problems.

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2. Export Council: Consultative body comprising of Chambers, Exporters Associations and institutions of public sector. 3. Export Promotion Bureau (EPB). Main functions of EPB: (a) Quota allocation for export of RMG. (b) Participation in international trade fairs. (c) Arrangement of fair and exhibition both at home and abroad. (d) Arrangement of training programs for boost up exports. 3.5.3.Export Development Fund: As per agreement between International Development Association (IDA) and Government of Bangladesh, Export Development Fund (EDF) in foreign exchange have been created in Bangladesh Bank to finance import payment against import of raw materials of 100% export oriented industries on sight payment basis. An exporter is eligible to avail of EDF facilities on the basis of the following conditions: He must bean exporter of non-traditional manufacturing items.

The loan should be utilized in the case of importing raw materials for manufacturing the exportable products. The exporter must have an export LC. He must create a back to back LC for importing raw materials. The period of loan is 180 days. The exporter can borrow as many times as he likes in a year. An exporter can borrow an amount an US$ 500,000 in a single case but outstanding should not be over US$ 1,000,000. He has to obtain Export Credit insurance through ECGS.

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3.5.4. EXPORT PROCEDURES: The import and export trade in our country are regulated by the Import and Export (Control) Act, 1950. Under the export policy of Bangladesh the exporter has to get valid Export registration Certificate (ERC) from Chief Controller of Import & Export (CCI&E). The ERC is required to renew every year. The ERC number is to incorporate on EXP forms and other papers connected with exports.
EXPORT PROCEDURE

EXPORTER: OBTAINING EXPORT REGISTRATION CERTIFICATE (ERC) FROM CCI & E EXPORTER: OBTAINING EXPORT REGISTRATION CERTIFICATE (ERC) FROM CCI & E

EXPORTER: SECURING EXPORT ORDER FROM BUYER DIRECTLY OR THROUGH AGENT. EXPORTER: SECURING EXPORT ORDER FROM BUYER DIRECTLY OR THROUGH AGENT.

EXPORTER: RECEVING L/C FORM BUYERS BANK THROUGH AN ADVISING BANK IN BANGLADESH BANK: CERTIFICATION OF FROM AUTHORISED DEALER (BANK)

WILL THE EXPORTER BE ALLOWED ANY PRESHIPMENT CREDIT FACILITY

3.5.4.1. REGISTRATION OF EXPORTERS: For obtaining ERC, intending Bangladeshi exporters are required to apply to the controller/ Joint Controller/ Deputy Controller/ Assistant Controller of Imports and Exports, Dhaka/ Chittagong/ Rajshahi/ Mymensingh/ Sylhet/ Comilla/ Barishal/ Bogra/ Rangpur/ Dinajpur in the prescribed form along with the following documents: Nationality and Assets Certificate;

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Memorandum and Article of Association and Certificate of Incorporation in case of Limited Company; Bank Certificate; Income Tax Certificate and Trade License etc.

3.5.4.2. SECURING THE ORDER: After getting ERC Certificate the exporter may proceed to secure the export order. He can do this by contacting the buyers directly or through agent.In this purpose the exporter may get help from: License Officer; Buyers Local Agent; Export Promoting Organization; Bangladesh Mission Abroad; Chamber of Commerce (local & foreign) Trade Fair etc.

3.5.4.3. RECEIVING LETTER OF CREDIT: After getting contract for sale, exporter should ask the buyer for Letter of Credit (L/C) clearly stating terms and conditions of export and payment. The following are the main points to be looked into for receiving/ collecting export proceeds by means of Documentary Credit: The terms of the L/C are in conformity with those of the contract; The L/C is an irrevocable one, preferably confirmed by the advising bank; The L/C allows sufficient time for shipment and negotiation.

Terms and conditions should be stated in the contract clearly in case of other mode of payment: Cash in advance; Open account; Collection basis (Documentary/ Clean)
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3.5.4.4. PROCURING THE MATERIALS: After making the deal and on having the L/C opened in his favor, the next step for the exporter is to set about the task of procuring or manufacturing the contracted merchandise.

3.5.4.5. SHIPMENT OF GOODS: Then the exporter should take the preparation for export arrangement for delivery of goods as per L/C and incomers, prepare and submit shipping documents for Payment/ Acceptance/ Negotiation in due time. Documents for shipment: ERC (valid), L/C copy, Customer Duty Certificate, Shipping Instruction, Transport Documents, Insurance Documents EXP form, Invoice, Other Documents, Bills of Exchange (if required) Certificate of Origin, Inspection Certificate, Quality Control Certificate, G.S.P. Certificate, Phyto-sanitary Certificate

3.5.4.6. FINAL STEP: Submission of the documents to the Bank for negotiation.

3.5.5. Export Financing:

Financing exports constitutes an important part of a banks activities. Exporters require financial services at four different stages of their export operation. During each of these

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phases exporters need different types of financial assistance depending on the nature of the export contract.

Pre-shipment credit Post-shipment credit

3.5.5.1 Pre-shipment credit: Pre-shipment credit, as the name suggests, is given to finance the activities of an exporter prior to the actual shipment of the goods for export. The purpose of such credit is to meet working capital needs starting from the point of purchasing of raw materials to final shipment of goods for export to foreign country. Before allowing such credit to the exporters the bank takes into consideration about the credit worthiness, export performance of the exporters, together with all other necessary information required for sanctioning the credit in accordance with the existing rules and regulations. Pre-shipment credit is given for the following purposes: expenses.

Cash for local procurement and meeting related Procuring and processing of goods for export. Packing and transporting of goods for export. Payment of insurance premium. Inspection fees.

An exporter can obtain credit facilities against lien on the irrevocable, confirmed an unrestricted export letter of credit in form of the followings: Export cash credit (Hypothecation) Export cash credit (Pledge) Export cash credit against trust receipt. Packing credit. Back to back letter of credit. Credit against Red-clause letter of credit.

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Export cash credit (Hypothecation): Under this arrangement, a credit is sanctioned against hypothecation of the raw materials or finished goods intended for export. Such facility is allowed to the first class exporters. As the bank has got no security in this case, except charge documents and lien on exports L/C or contract, bank normally insists on the exporter in furnishing collateral security. The letter of hypothecation creates a charge against merchandise in favor of the bank. But neither r the ownership nor the possession is passed to it. Export cash Credit (Pledge): Such Credit facility is allowed against pledge of exportable goods or raw materials. In this case cash credit facilities are extended against pledge of goods to be stored in the godown under banks control by signing letter of pledge and other pledge documents. The exporter surrenders the physical possession of the goods under banks effective control as security for payment of bank dues. In the event of failure of the exporter to honor his commitment, the bank can sell the pledged merchandise for recovery the advance.

Export Cash Credit Against Trust Receipt: In this case, credit limit is sanctioned against trust receipt (TR). Here also unlike pledge, the 3xportable goods remain in the custody of the exporter. He is required to execute a stamped export trust receipt in favor of the bank, he holds wherein a declaration is made that goods purchas4ed with financial assistance of bank in trust for the bank. This type of credit is granted when the exporter wants to utilize the credit for processing, packing and rendering
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the goods in exportable condition and when it seems that exportable goods cannot be taken into banks custody. This facility is allowed only to the first class party and collateral security is generally obtained in this case.

Packing Credit: Packing Credit is essentially a short-term advance granted by a Bank to an exporter for assisting him to buy, process, manufacture, pack and ship the goods. Generally for movement of goods from the hinterland areas to the ports of shipment the Banks provide interim facilities by way of Packing Credit. This type of credit is sanctioned for the transitional period starting from dispatch of goods till the negotiation of the export documents. Practically except for single transaction, most of the pre-shipment credits are allowed in the form of limits duly sanctioned by Bank in favor of regular exporters for a particular period. The drawings are required to be adjusted fully once within a period of 3 to 6 months. Suiting to the breed and nature of export, sometimes an exporter may also be allowed to avail a combined Cash Credit and Packing Credit limit with fixed ceiling on revolving basis. But in no case the borrower would be allowed to exceed individual credit limit fixed for the purpose. The drawings under Export Cash Credit limits are generally adjusted by the drawing in packing credit limit, which is, in turn liquidated by the negotiation of export documents.

3.5.6. BACK TO BACK LETTER OF CREDIT (BTB): Bangladesh is a developing country. After receiving order from the importer, very frequently exporters face problems of scarcity of raw material. Because some raw materials are not available in the country. These have to be collected from abroad. In that case, exporter gives lien of export L/C to bank as security and opens an L/C against it for importing raw materials. This L/C is called Back To Back L/C. In back to back L/C, PBL keeps no margin.
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Sometimes there is provision in the export L/C that the importer can use the certain portion of the export L/C amount for importing accessories that are necessary for the making of the product. Only in that case, BTB is opened.

3.6. Remittance Business

On March 24, 1994 Bangladesh Taka was declared convertible for Current account International Transaction. Foreign remittance means remittance of foreign currencies from one place/persons to another place/person. In broad sense, foreign remittance includes all sale and purchase of foreign currencies on account of Import, Export, Travel and other purposes. However, specifically foreign remittance means sale & purchase of foreign currencies for the purposes other than export and import. As such, this chapter will not cover purchase & sale of foreign currencies on account of Import & Export of goods. 3.6.1. Private Remittance: The major sources of private remittance are described below in detail:

1. Family remittance facility: Foreign Nationals working in Bangladesh with approval of the Government may remit through an Authorized Dealer 50% of Salary and 100% of leave salary as also actual savings and admissible person benefits. No prior approval of Bank is necessary for such remittance. 2. Remittance of Membership fees/registration fees etc.
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Authorized Dealer may remit without prior approval of Bangladesh Bank, membership fees of foreign professional and scientific institutions and fees for application registration, admission, examination (TOEFL, SAT etc.) in connection with admission into foreign educational institutions on the basis of written application supported by demand notice/letter of the concerned institution.

3. Education: Prior permission of Bangladesh Bank is not required for releasing foreign exchange in favor/on behalf of Bangladesh students studying abroad or willing to proceeds abroad for studies.

4. Remittance of Consular Fees: Consular fees collected by foreign embassies in Bangladesh Taka and deposited in a Taka Account maintained with an AD solely for this purpose may be remitted abroad without prior approval of Bangladesh Bank. 5. Travel: Private travel quota entitlement of Bangladesh Nationals is set at US$3000/- per year for visit to countries other than SAARC member countries and Myanmar, Quota for SAARC member countries and Myanmar is US$1000/- for travel by air and US$500/-for travel by overland route. Authorized Dealers may release this travel quota in the form of foreign currency notes upto US$500/- or equivalent and balance exchange in the form of TCs or total quota in the form of TCs The annual quotas mentioned above are for adult passengers. 6. Health & Medical: Authorized Dealers without prior approval of Bangladesh Bank may release foreign exchange upto US$10,000/- for medical treatment abroad on the basis of the recommendation of the medical Board set up the Head Directorate and the cost estimate of the foreign medical institution. Applications for release of exchange exceeding US$10,000/- should be forwarded along with supporting documents to Bangladesh Bank for prior approval. 7. Remittance for Hajj:
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Authorized Dealers may release foreign exchange to the intending pilgrims for performing Hajj as per instructions/circulars to be issued by the Bangladesh Bank each year.

3.6.2. Official & Business Travel Remittance: 1. Official Visit: For official or semi officials visits abroad by the officials of govt., Autonomous/Semiautonomous institutions etc., Authorized Dealers may release foreign exchange as per entitlements fixed by the Ministry of Finance from time to time, In such cases, the applicant for foreign exchange shall be required to submit the sanction letter and the competent authoritys Order/Notification/Circular authorizing the travel.

2. Business Travel Quota for New Exporters: Up to US$6,000/- or equivalent may be issued by an AD without prior approval of Bangladesh Bank to a new exporter for business travel abroad, against recommendation letter from Export Promotion Bureau, Bona-fide requirement beyond US$6000/- is accommodated by Bangladesh Bank upon written request through an AD with supporting documents.

3. Business Travel Quota for Importers and Non-exporting producers: 1. 2. Subject to annual upper limit of US$5000/- importers are entitled to a Subject to annual upper limit of US$5000/- non exporting producers for the

business travel quota @ 1% of their imports settled during the previous financial year. local markets are entitled to a business travel quota @1% of their turnover of the proceeding financial year as declared in their tax returns.
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The same business organization engaged in imports as well as production shall however; draw business travel quota entitlement only on one count.

4. Exporters Retention Quota: I) Merchandise exporters may retain up to 40% of realized FOB value of their exports in foreign currency accounts. However, for exports of goods having accounts. However, for exports of goods having high import content (such as readymade garments, POL products including naphtha, furnace oil bitumen, electronic goods etc.,) the retention quota is 7.5% of the repatriated FOB value. Funds from these accounts can be used to meet bonafide business expenditure, such as business visits abroad, participation in export fairs and seminars, establishment and maintenance of office abroad, import of raw materials, machinery and spares etc. without prior approval of Bangladesh Bank.Exporters may at their option, retain the foreign currency in interest bearing renewable term deposit accounts with Authorized Dealers in US Dollar, Pound Sterling DM or Japanese Yen with a minimum account of US$2000 or Pound 1500/ii) Service exporters (excluding indenting commission or agency commission of indenting house of buying house respectively) may retain 5% of their repatriated income in foreign currency accounts or as renewable time deposits with Authorized Dealers, Funds from these accounts can be used to meet expenses for bonafide business travel abroad.

3.6.3. Commercial Remittances: 1. Opening of branches or subsidiary companies abroad:

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Remittance of up to US$30,000/- or equivalent per annum may be released by the Authorized Dealers without prior approval of Bangladesh Bank to meet current expenses of offices/branches opened abroad by resident in Bangladesh or Commercial/Industrial concern incorporated in Bangladesh.

2. Remittance by shipping companies airlines & courier service: Foreign Shipping Companies, airlines and courier service companies may send, through an AD, funds collected in Bangladesh towards freight and passage after adjustment of local cost & Taxes, if any without prior approval of Bangladesh Bank.

3. Remittance of Royalty and technical fees: No prior permission of the Bangladesh Bank of BOI is required by the enterprises for entering into agreement involving remittance of royalty, technical know-how or technical assistance fees, operational services fees, marketing commission etc., if the total fees and other expenses connected with technology transfer do not exceed. 6% of the cost of imported machinery in case of new projects. 6% of the previous years sales as declared in the income tax returns of the

ongoing concerns.

The Authorized Dealers may remit such royalty and other fees without prior approval of Bangladesh Bank. 4. Remittance on account of training & consultancy: Industrial enterprises producing for local market may remit through Authorized Dealers up to 1% of their annual sales as declared in their previous years tax return for the purpose of
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training and consultancy services as per relevant contract with the foreign trainer/consultant, without prior approval of Bangladesh Bank. 5. Remittance of profits of foreign firms/branches: Authorized Dealers may without prior Bangladesh Bank approval remit abroad the post tax profits of branches of foreign firms and companies including foreign banks & other financial institutions subject to submission of relevant documents/information along with the application.

6. Remittance of Dividend: Prior permission of Bangladesh Bank is not required for: Remittance of dividend income to non-resident shareholders on receipt of

application in the prescribe form from the companies concerned.

reserves.

Remittance of dividend declared out of previous years accumulated

7. Subscriptions to foreign media services: On application from the local newspapers, Authorized Dealers may remit foreign exchange towards cost of subscription of news items, features, articles of foreign news agencies subject to submission of (I) contracts entered into between the applicant and the foreign news agency and (ii) NOC of the Ministry of Information.

8. Costs/ for Reuter monitors: Authorized Dealers may remit abroad costs/fees on account of their own subscription to foreign media services such as Reuter monitor service, without prior approval of Bangladesh Bank.

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9. Advertisement of Bangladeshi Products in mass media abroad:

Prior permission of Bangladesh is not required by the Authorized Dealers for remittance of charges for advertisement of Bangladeshi commodities in mass media abroad subject to submission of Invoice from the concerned foreign mass media along with the applications of the remitter. The applicant will have to submit copy of the advertisement to the Ad within one month of this issuance.

3.6.4. Features of Different Foreign Currency Accounts: Shahjaial Islami Bank Limited maintains different foreign currency accounts. Each has some unique characteristics that customers require. Some of them are presented below:

3.6.4.1. FC General A/C: Payment can be made freely abroad from these accounts. Local disbursement can be made freely in Taka, (if and not FC specially permitted by the Government/Bangladesh Bank). Bills of Foreign Contractors/Missions may be settled from these accounts. Convertible Foreign Exchange i.e. TC, Draft, Cash Currency may be deposited. Interest can be paid provided the accounts are maintained in the form of term deposits for a minimum period of 90 days. No tax payable against the interest accrued as per Income Tax Act. FC accounts can be opened in US Dollar, EURO, Deutsche Mark, Japanese Yen and Pound Sterling.

3.6.4.2 Exporters Foreign Currency Accounts: On realization of export proceeds in Foreign Exchange, the bank will credit the exporters Quota to this account @ 7.5% of FOB value. The balance of such FC accounts can be used
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by the exporter for bonafide business purpose only such as business visit abroad, participation in export firms and seminars, import of raw materials, machineries, spares etc.Interest bearing renewable term deposits may be kept in US Dollar, Pound Starling, EURO and Japanese Yen with minimum balance of USD 2,000 or Pound Starling 1,500 or equivalent.

3.6.4.3 Non-resident Foreign Currency Account (NFCD Accounts): Account nature is Term Deposit of 1 month, 3 months, 6 months and 1 year for minimum amount of USD 1,000.00 or Pound Starling 500 or equivalent in EURO, Deutsche Mark and Japanese Yen. NFCD accounts may be opened against direct remittances or by debiting FC General Account. Those Accounts can be maintained as long as desired. Applicants signature should be verified by the Bangladesh Mission abroad or a reputable bank or any other person acceptable to AD in Bangladesh if the applicant do not maintain ay FC account with the AD Bank. Interest payable at the EURO currency rate. No interest on premature encashment. Interest exempted from Income tax payment. Principal amount and the interest are repatriatable to any foreign country.

3.6.4.4 Resident Foreign Currency Account (RFCD Accounts): Amount up to US$ 5,000.00 may be deposited without declaration, any amount excess of USD 5,000.00 brought in may also be deposited through customs declaration form FMJ

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A declaration should by taken that this Foreign Exchange is not a receipt against export of goods or services from Bangladesh or a commission due from abroad arising any business deals in Bangladesh.

Balances in RFCD Account shall be transferred freely abroad. Release of FC should be up to USD 300.00 in the form of cash and reminder in the form of TC.

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