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Module 4
Contents
• Banks-Authorized Dealers
• Corporates
• Individual Investors
• RBI- open market operations, interest
rate policies
• Investment Managers &Hedge Funds
Organisations regulating Foreign exchange
A. Account Services
• i. Clearing House Functions
• ii. Collections
• iii. Payments
• iv. Overdraft and loan facility
• v. Investment Services
Correspondent Banking Contd.
B. Other Services
• i. Letter of Credit Advising
• ii. LC confirmation
• iii. Bankers Acceptance- is a short-term debt instrument issued by a
company that is guaranteed by a commercial bank
• iv. Issuance of Guarantees
• v. Foreign Exchange services, including derivative products
• vi. Custodial Services etc.
Types of NRI bank account-
IIBF 176
• Letter of Credit
• External Commercial Borrowing
• Buyer’s Credit/ Seller’s Credit
• Packing Credit Foreign Currency Loan
Letter of Credit- Features
Players
Applicant (Buyer)
Issuing Bank/ Opening Bank
Advising Bank
Confirming Bank
Beneficiary (Seller)
Types of LC
• 1. Importer ABC Corp from Germany wants to import raw material from
exporter SBC Inc in Japan for a period of 1 year at a regular intervals.
• Every month ABC Corp will be importing the material worth $250,000 and
the total value of the import under this contract is $3,000,000.
• The parties agree to open a revolving credit as instead of opening a regular
documentary credit for each transaction every month, one set of credit
opened at the commencement of the contract remains valid till one year.
• Importer saves time and the cost for opening documentary credit for 12
times.
• Under this arrangement importer is able to receive continuous supply of raw
materials for the contracted period of one year.
Example of Revolving LC
• 2. An oil exporter from UAE, Oil King Inc has signed a contract to
supply oil to an importer in China, Petronit Inc.
• The following is the delivery schedule: 1st month 6000 MT; 2nd month
12000 MT; 3-14 months 12000 MT.
• The agreed payment terms call for Irrevocable, Transferable, Auto-
revolving DLC 100% At Sight.
• Depending on the parties agree, the LC can be replenished either by
amendment or automatic, it will state the shipment schedule and the
value of each installment which will depend on the rate.
• And considering the nature of the goods issuing bank will ideally
permit the installment shipment to be lower than prescribed in the LC
which arises the question whether it is cumulative or non-cumulative.
External Commercial Borrowing
Features
Commercial loans- non-resident lenders
with a minimum average maturity of 3 years
• ECB can be accessed under two routes,
viz.:-
A. Automatic Route -does not require
RBI/GOI approval
B. Approval Route
ECB Contd.
• Investment
• import of capital goods, new projects
• modernization/expansion of existing units in industrial
service sectors including infrastructure sector.
• Overseas direct investment in Joint Ventures (JV) /
Wholly Owned Subsidiaries (WOS)
ECB- Merits
1. Funded Assistance
a. Loans to Indian Companies
b. Loans to foreign governments, companies and financial institutions
c. Loans to commercial banks in India
2. Non-Funded Assistance- guarantee
3. Assistance for Export Bids
4. Finance for “Deemed Exports”
NEW SCHEMES
Buyer’s Credit under NEIA (National Export Insurance Account)
Renewable Energy Financing- EIB (European Investment Bank)
R & D Financing
Capital and Resources of EXIM Bank
1. What do you mean by Forex? What are the features of Forex Markets?
2. Give the meaning of “letter of credit”. Explain how it works.
3. Explain the players and different types of Letter of Credit.
4. What is “Correspondent banking”? Mention the services rendered by
correspondent banking
5. What is exchange rate? What are the factors that effect exchange rate?
6. What are the functions of ECGC and EXIM bank?
7. Explain the factors effecting Forex Rate.
8. What are the types of accounts that can be opened by NRIs?
9. What are the methods of International Financing?
10. Who are the major players in the Forex Market
11. Explain the credit facilities provided to the importers & exporters.
12. List out the organisations regulating Foreign exchange.