F Exchange Ok

8/10/2019 F Exchange Ok

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Foreign Exchange BASIC Bank Ltd-

Foreign Exchange means foreign currency and it includes any instrument

drawn, accepted, made or issued under clause (13), Article 16 of the

Bangladesh Bank rder, 1!"#$ All deposits, credits and %alances paya%le in

any foreign currency and draft, tra&elers che'ue, letter of credit and %ill of

exchange expressed or drawn in Bangladeshi currency %ut paya%le in any

foreign currencies$

Bangladesh Bank issues Authoried ealer (A) license %y o%ser&ing the

%ank*s performance and also the customers associated with the %ank forconducting foreign dealings$

Back Ground of Banks Involvement

Banks play a &ital role %y minimiing the risk of two parties, namely %uyer and

seller$ +n fact without the help of %anks we cannot think a%out a congenial

international trade en&ironment$ ow the 'uestion comes how %anks help

international trade$ -e know that in a local trade there is a chance to knowa%out each other$ But in international trade the in&ol&ed parties stay two distant

places$ .or a %uyer the following risks are in&ol&ed/

0isk of non/deli&ery of goods$

0isk of recei&ing su% standard goods$

0isk of fraud in goods$

.or the seller the following risk is in&ol&ed/

0isk of non/payment$

o reduce the aforesaid risks an independent system is introduced which will

safeguard the %uyer as well as seller in an international trade$ Actually %anks

play due role %y getting into two parties and %ind them$

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+ m p o r t 2 e c t i o n E x p o r t 2 e c t i o n 0 e m i t t a n c e 2 e c t i o n

. o r e i g n E x c h a g e


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3.1 IMPORT SETIO!

3.1.1 FOREIG! TR"#E #EP"RTME!T

.oreign trade deals with import and export %usiness.hat is why there are two parts

in foreign trade department in BA2+4 Bank 5imited$

a$ +mport epartment

%$ Export epartment

+mport department deals with the import oriented foreign trade while export department

deals with export oriented foreign trade

3 .1 .$ IMPORT%

+mports are foreign goods and ser&ices purchased %y consumers, f i rms 7o&ernments in Bangladesh$ o import, a person should %e competent

to %e a 8 importer * $ According to +mport and Export 4ontrol Act, 1!9:, the

ff ice f 4hief 4ontrol ler f +mport and Export pro&ides the registrat ion

(+04) to the importer$

3.1.3 IMPORT PROE#&RES%

1. Re'(strat(on )(t* I+E

a$ .or engaging in international trade, e&ery trader must %e first registered

with the 4hief 4ontroller of +mport and Export.

%$ By paying specified registration fees and su%mitting necessary papers to

the 44+E. the trader will get +04 (+mport 0egistration 4ertificate)$After

o%taining +04, the person is eligi%le to import.

$. Purc*ase ontract ,et)een (m-orters and e-orter%

a$ ow the importer has to contact with the seller outside the country to o%tain

the proforma in&oice ; indent which descri%es goods.

%$ +ndent is got through indenters a local agent of the sellers.

c$ After the importer accept the preformed in&oice, he makes a purchasecontract with the exporter declaring the terms and conditions of the import .

d$ +mport procedure differs with different means of payment. +n most cases

import payment is made %y the documentary letter of credit (5;4) in our

country.

3. ollect(on of /" form%

hen the importer collects an 5etter of 4redit Authoriation ( 54A) form BA2+4

Bank haka E


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0. O-en(n' a /etter of red(t /2

+n international en&ironment, %uyers and sellers are often unknown to each other.

2o seller always seek guarantee for the payment for his goods exported.>ere isthe role of %ank.Bank gi&es export guarantee that it will pay for the goods on

%ehalf of the %uyer.his guarantee is called 5etter of 4redit.hus the contract

%etween importer and exporter is gi&en a legal shape %y the %anker %y its 85etter of

4redit*.

a. Part(es of /2

i$ Im-orter? 2eller -ho applies for opening an 5;4.

ii$ Issu(n' Bank? +t is the %ank which opens;issues a 5;4 on %ehalf of theimporter.

iii$ onf(rm(n' Bank? +t is the %ank, which adds its confirmation to the credit

and it, is done at the re'uest of issuing %ank.4onfirming %ank may or may

not %e ad&ising %ank.

i&$ "dv(s(n' 2 !ot(f4(n' Bank? is the %ank through which the 5;4 is ad&ised

to the exporters.his %ank is actually situated in exporter*s country.+t may

also assume the role of confirming and ; or negotiating %ank depending

upon the condition of the credit.

&$ !e'ot(at(n' Bank ? is the %ank, which negotiates the %ill and pays the

amount of the %eneficiary.he ad&ising %ank and the negotiating %ank may

or may not %e the same.2ometimes it can also %e confirming %ank.

&i$ Pa4(n' 2 "cce-t(n' Bank? is the %ank on which the %ill will %e drawn (as

per condition of the credit).@sually it is the issuing %ank.

&ii$ Re(m,urs(n' ,ank? is the %ank, which would reim%urse the negotiating

%ank after getting payment ? instructions from issuing %ank.

,. "--l(cat(on For /2 l(m(t%

Before opening 5;4, importer applies for 5;4 limit.o ha&e an import 5;4 limit,

an importer su%mits an application to the epartment of BA2+4 Bank 5imited

furnishing the following information, /

i$ .ull particulars of %ank account maintained with BA2+4 E


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&i$ ffered security

&ii$ 0epayment schedule

A credit fficer scrutinies this application and accordingly prepares a proposal (45ead ffice 4redit 4ommittee (>44) . he 4ommittee, if

satisfied, sanctions the limit and returns %ack to the %ranch.hus the importer is

entitled for the limit.

c. T*e /2 "--l(cat(on%

After getting the importer applies to the %ank to open a letter of credit on %ehalf

of him with re'uired papers.

i$ #ocumentar4 red(t "--l(cat(on Form%

ii$ BA2+4 Bank pro&ides a printed form for opening of 5;4 to the importer.his

form is known as 4redit Application form .A special adhesi&e stamp is affixed

on the form. -hile opening, the stamp is cancelled. @sually the importer

expresses his desire to open the 5;4 'uoting the amount of margin in

percentage.

iii$ Proforma Invo(ce% +t states description of the goods including 'uantity, unit

price etc.

i&$ T*e (nsurance cover note%he name of issuing company and the insurance

num%er are to %e mentioned on it.

&$ T*e /etter of cred(t aut*or(5at(on /" form% 54A form should %e duly

attested$

&i$ he .orm/+


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*. 4ertificate declaring that the item is in operation not more than 9 years in case

of car.

Accounting reatment in 4ase f 5;4 pening

ow if the fficer thinks fit the application to open an 5;4, the following entries are

gi&en to realie the 5;4 commission, charges, postage, 5;4 margin etc ., /

4lient*s Account////////////////////////////////////////////////////////////////r.

2undry deposit margin on 5;4//////////////////////////////////////////////4r.

+ncome A;4 commission/////////////////////////////////////// /////////////4r.

2undry deposit margin foreign currency clearing (..4.4) A;4/////4r.

CA (19D of 4ommission) on 5;4////////////////////////////////////////4r.

+ncome A;4 (postage;telex)/////////////////////////////////// /////////////4r.

After that, 5;4 num%er and the a%o&e entries are gi&en in the 5;4 0egister.he contra

entries stating the lia%ility of the %ank and the client are as follow

4ustomers 5ia%ility////////////////////////////////////r.

Banker*s 5ia%ility////////////////////////////////////////4r.

8. ransmission of 5;4 to Beneficiary through Ad&ising Bank

hen the transmission of 5;4 is done through tested telex or fax to ad&ise the 5;4

to the ad&ising %ank$ he ad&ising %ank &erifies the authenticity of the 5;4$

BA2+4 Bank has corresponding relationship or arrangement throughout the world

%y which the 5;4 is ad&ised$ Actually the ad&ising %ank does not take any lia%ility if

otherwise not re'uested$

4redit 0eport

+f the amount of 5;4 exceeds @2F1::::;G, BA2+4 Bank takes the credit report of

the %eneficiary to ensure the worthiness of the of supplying goods

9. "mendment of t*e /etter of red(t%

-hen the parties in&ol&ed in a 5;4, especially the seller want to change the terms

and conditions due to some o%&ious and genuine reasons the credit should %e

amended.BA2+4 Bank transmits the amendment %y tested telex to the ad&ising

%ank.+f the 5;4 is amended, ser&ice charge and telex charge is de%ited from the

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party account accordingly.According Articles 9 of @4


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a. #(scre-anc4 found ,ut t*e (m-orter acce-ts/ then the %ank will lodge the

documents

,. #(scre-anc4 found and (m-orter not a'reed to acce-t/ +ssuing %ank wouldintimate negotiating %ank for re&ised document or return the documents to the

negotiating %ank for necessary action.>ere issuing %ank is not %ound to pay

%ecause the documents send %y exporter is not in accordance with the terms of

5;4.

c. #ocuments are O= ,ut (m-orter (s not )(ll(n' to ret(re t*e documents/ +n

this case %ank is o%ligated to pay the price of exported goods .2ince importer

did not pay for %ill of exchange, this payment %y %ank is one kind of credit to

the importer and this credit in %anking is known as .04E uest ,ank to clear/ +n this case %anks clear the goods and takes deli&ery

of the same %y paying customs duty and sales tax etc .2o, this expenditure is

de%ited to the importer*s account and in %anking it is called 5+ .

1?. /od'ment of #ocuments%

5odgment means retirement of funds.@sually payment is made within se&en days

after the documents ha&e %een recei&ed. +f the payment is %ecome deferred, the

negotiating %ank may claim interest for making delay. 5odgment constitute the

followings

a. Re>u(s(t(on for t*e fore('n currenc4% .or arranging necessary fund for

payment, a re'uisition is sent to the +nternational epartment .

,. Pre-ar(n' sale memo%A sale memo is made at B.4 rate to the customer.As

the . . rate is paid to the +, the difference %etween these two rates is

exchange trading..inally, an +nter Branch Exchange rading 4redit Ad&ice is

sent to +.

c. reat(on of P"# l(a,(l(t4%BA2+4 Bank lodges the con&erted the %ill amount at

B4 (Bills 4ollection) rate pre&ailing on the date of lodgment to


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.oreign Exchange 0egulation Act, 1!J" no%ody can export %y post and otherwise than

%y post any goods either directly or indirectly to any place outside Bangladesh, unless

a declaration is furnished %y the exporter to the collector of customs or to such otherperson as the Bangladesh Bank (BB) may specify in this %ehalf that foreign exchange

representing the full export &alue of the goods has %een or will %e disposed of in a

manner and within a period specified %y BB$

Bangladesh exports a large 'uantity of goods and ser&ices to foreign households.

0eadymade textile garments (%oth knitted and wo&en), Kute, Kute/made products,

froen shrimps, tea are the main goods that Bangladeshi exporters exports to foreign

countries.7arments sector is the largest sector that exports the lion share of the

countrys export. Bangladesh exports most of its readymade garments products to

@.2.A and European 4ommunity (E4) countries.Bangladesh exports a%out J:D of its

readymade garments products to @.2.A.ost of the exporters who export BA2+4

Bank are readymade garment exporters.hey open export 5;4s here to export their

goods, which they open against the import 5;4s opened %y their foreign importers .

3.$.1 FORM"/ITIES FOR EAPORT /2%

here are a num%er of formalities, which an exporter has to fulfill %efore and after

shipment of goods.hese formalities or procedures are enumerated as follows, /

1. O,ta(n(n' E-ort Re'(strat(on ert(f(cate ER%

o exporter is allowed to export any commodity permissi%le for export from

Bangladesh unless he is registered with 4hief 4ontroller of +mports and Exports

(44+ E) and holds &alid Export 0egistration 4ertificate (E04).After applying to

the 44+E in the prescri%ed from along with the necessary papers, concerned

offices of the 4hief 4ontroller of +mports and Exports issues E04 .nce registered,

exporters are to make renewal of E04 e&ery year.

$. Secur(n' t*e order%

After getting E04, the exporter may proceed to secure the export order.>e can do

this %y contracting the %uyers directly through correspondence.

3. O,ta(n(n' EAP%

After ha&ing the registration, the exporter applies to BA2+4 Bank with the trade

license, E04 and the 4ertificate from the concerned 7o&ernment rganiation to

get EL


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0. S('n(n' of t*e contract%

After communicating with %uyer the exporter has to get contracted for exporting

exporta%le items from Bangladesh detailing commodity, 'uantity, price, shipment,

insurance and mark, inspection, ar%itration etc.

7. Rece(v(n' t*e /etter of red(t%

After getting contract for sale, exporter should ask the %uyer for 5etter of 4redit

clearly stating terms and conditions of export and payment.

"fter rece(v(n' /2; t*e follo)(n' -o(nts are to ,e looked for%

a. he terms of the 5;4 are in conformity with those of the contract .

b. he 5;4 is an irre&oca%le one, prefera%ly confirmed %y the ad&ising %ank.

c. he 5;4 allows sufficient time for shipment and a reasona%le time for

registration.

d. +f the exporter wants the 5;4 to %e transfera%le, di&isi%le and ad&isa%le, he

should ensure those stipulations are specially mentioned in the 5;4.

8. Procur(n' t*e mater(als%

After making the deal and on ha&ing the 5;4 opened in his fa&or, the next step for

the exporter is to set a%out the task of procuring or manufacturing the contracted

merchandise.

9. Endorsement on EAP

Before the export forms are lodged %y the exporters with the customs;postal

authorities, they should get all the copies endorsed %y BA2+4 Bank. Before

shipment, exporter su%mits exp.form with commercial in&oice.hen BA2+4 Bank

officer checks it properly, if satisfied, certifies the exp.-ithout it exporter he cannot

make shipment.he customer must declare all exports goods on the EL< issued

%y the authoried dealers

#(s-osal of E-ort Forms%

a. Or('(nal customs authority reports first copy of EL< to Bangladesh Bank

after shipment of the goods.

,. #u-l(cate% egotiating %ank reports the uplicate to Bangladesh Bank in

or after negotiation date %ut not later than 1J days from the date of

shipment..

c. Tr(-l(cate%n realiation of export proceeds riplicate is reported %y the

same %ank to the same authority.

d. uadru-l(cate%.inally, the negotiating %ank as their office copy retains

Muadruplicate

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:. S*(-ment of 'oods% Exporter makes shipment according to the terms and

condition of 5;4$


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11. Eam(nat(on of #ocument %

Banks deal with documents only, not with commodity.As the negotiating %ank is

gi&ing the &alue %efore repatriation of the export proceeds it is ad&isa%le toscrutinie and examine each and e&ery document with great care whether any

discrepancy(s) is o%ser&ed in the documents.he %ankers are to ascertain that the

documents are strictly as per the terms of 5;4 Before negotiation of the export %ill .

Bank officers assigned for examining the export documents may use a checklist for

their con&enience.

1$. !e'ot(at(on of e-ort documents %

egotiation stands for payment of &alue to the exporter against the documents

stipulated in the 5P4. +f documents are in order, BA2+4 Bank purchases

(negotiates) the same on the %asis of %anker/ customer relationship.his is known

as .oreign ocumentary Bill


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iii$ A .B< 0egister is maintained for recording all the particulars.

,. Fore('n documentar4 ,(lls for collect(on F#B%BA2+4 Bank forwards the documents for collection due to the following

reasons,/

+f the documents ha&e discrepancies.

+f the exporter is a new client.

he %anker is in dou%t.

.B4 signifies that the exporter will recei&e payment only when the issuing

%ank gi&es payment.BA2+4 Bank make regular follow/up with the 5;4 opening

Bank in case of any delay in getting payment.

he exporter su%mits duplicate EL< .orm and 4ommercial +n&oice.

2u%se'uently, the &alue of the %ill is calculated and the following accounting

entries are gi&en, /

>ead ffice A;4///////////////////////////////////////////////////r.Q . 4lean

4lient*s A;4///////////////////////////////////////////////////////4r.Q sight

7o&ernment ax A;4//////////////////////////4r.Q :.1: D of +n&oice &alue


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a. he customer su%mits the 5;4 to BA2+4 Bank along with the documents to

negotiate

,. BA2+4 Bank official scrutinies the documents to ensure the conformity withthe terms and conditions.

c. he documents is then forwarded to the 5;4 opening %ank.

d. he 5;4 issuing %ank gi&es the acceptance and forward an acceptance letter.

e.


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+n acceptance credit, the exporter presents a %ill of exchange paya%le to himself

and drawn at the agreed tenor (that is, on a specified future date or e&ent) on the

%ank that is to accept it.he %ank signs its acceptance on the %ill and returns it tothe exporter. he exporter can then represent it for payment on maturity.

Alternati&ely he can discount it in order to o%tain immediate payment.

d$ !e'ot(at(on red(t

+n egotiation credit, the exporter has to present a %ill of exchange paya%le to

himself in addition to other documents, that the %ank negotiates .

3.$.3 "#ISI!G /2%

-hen export 5;4 is transmitted to the %ank for ad&ising, the %ank sends an Ad&ising

5etter to the %eneficiary depicting that 5;4 has %een issued .

Test ke4 arran'ement%

est key arrangement is a secret code maintained %y the %anks for the authentication

for their telex messages.+t is a systematic procedure %y which a test num%er is gi&en

and the person to whom this num%er is gi&en can easily authenticate the same test

num%er %y maintaining that same procedure.BA2+4 Bank has test key arrangements

with so many %anks for the authentication of 5;4 messages and for making payment .

3.$.0 B"=6TO6B"= /2%

A Back/to/Back mechanism in&ol&es two separate 5;4s.ne is master Export 5;4 and

another is Back/to/Back 5;4.n the strength of aster Export 5;4 %ank issues %ank

to Back 5;4. Back/to/Back 5;4 is commonly known as Buying 5;4.n the contrary,

aster Export 5;4 is known as 2elling 5;4.

Features of ,ack6to6,ack /2%

a. /+s an +mport 5;4 to procure goods ;raw materials for further processing

,. /+s opened %ased on Export 5;4.

c. /+s a kind of Export .inanceS

d. /Export 5;4 is at 2ight %ut %ack to Back 5;4 is at @sance.

e. /o margin is re'uired to open Back to %ack 5;4

*eckl(st to o-en ,ack6to6,ack /2$

a. Application is registered with 44+E and has %onded warehouse license.,. he master 5;4 has ade'uate &alidity period and has not defecti&e clause .

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c. 5;4 &alue shall not exceed the admissi%le percentage of net .B &alue of

relati&e aster 5;4.

d. @sance period will %e up to 1R: days.

Flow Diagram of Back-to-Back L/C:

Scrut(n(5at(on of master /2%

a. efecti&e


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,. 5;4 application and 54A form

c.


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4. BA2+4 Bank issue Back/to/Back 5;4 and forwards the same to aiwan extile 5td.through a aiwanese %ank.

"ccount(n' Treatment for Back to Back /2%@*en t*e document (s arr(ved; t*e follo)(n' vouc*ers are -assed;6

4ustomer*s A;4 //////////////////////////////////////////////////r.

4ommission on acceptance///////////////////////////////////4r.

@*(le -a4ment; (f t*e fund (s at *and; t*e account(n' entr(es are;6

2undry eposit argin on Acceptance/////////////////////r.

4ustomer*s A;4 ////////////////////////////////////////////////4r.

+f the party is paid in foreign currency, B.4.rate is applied in this regard. +nternational

epartment takes the ....rate.+f the payment is made to + in local currency in

notional rate, ..4lean 0ate is followed %y +.-hen the party is %e paid, 2ight

rate is followed.

+f the fund is not a&aila%le to make the payment, the following &ouchers are to %e

passed,/

A< /////////////////////////////////////////////////////////////////////r.

4ustomer*s A;4 ///////////////////////////////////////////////////////4r.

Re-ort(n' to Ban'lades* Bank%

At the end of e&ery month, the reporting regarding the following information is

mandatory, /

a. .illing of E/#;


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3.3 OREIG! REMITT"!E SETIO!

The %asic function of this department are outward and inward remittance of foreign

exchange from one country to another country$ +n the process of pro&iding this

remittance ser&ice, it sells and %uys foreign currency$ he con&ersion of one currency

into another takes place at an agreed rate of exchange, in where the %anker 'uotes,

one for %uying and another for selling$ +n such transactions the foreign currencies are

like any other commodities offered for sales and purchase, the cost (con&ention &alue)

%eing paid %y the %uyer in home currency, the legal tender$

@ork(n's of t*(s de-artment%

&erall super&ision of .oreign 0emit.ept.

.oreign payment


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utward remittance co&ers sales of foreign currency through issuing foreign ..

rafts;ra&elers 4heck etc.as well as sell of foreign exchange under 5;4 and against

import %ills retired. 2ale of foreign exchange is reported to Exchange controlepartment of Bangladesh Bank on form ;.

.oreign exchange means foreign currency and includes all deposits; credits and

%alances paya%le in foreign currency as well as foreign currency instruments such as

rafts;.4.s;%ill of exchange, and 5etters of 4redit


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su%mit his passport.

.ollowing steps to %e followed in payment of .

At first the . is to %e crossed.

2erial num%er is gi&en.

.orwarding letter to the %ank with which the %ank has

agreement.

F Exchange Ok

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