chhatwal_20.08.2013

PRESENTED BY: V.K.CHHATWALCHIEF MANAGER

PUNJAB NATIONAL BANKDELHI

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To understand the meaning of foreign exchange The relation between foreign trade and

foreign exchange To understand the role of commercial banks

as authorised dealers

To understand the meaning of foreign exchange The relation between foreign trade and

foreign exchange To understand the role of commercial banks

as authorised dealers

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Export trade is regulated by:-

◦ Directorate General of Foreign Trade◦ Foreign Trade Policy◦ Foreign Exchange Management Act◦ FEDAI Rules◦ UCPDC - 600

Export trade is regulated by:-


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Status Category

Export House Star Export House Trading House Star Trading House Premier Trading

House

Export Performance(FOB value-Rs.Cr.)

20 100 500 2500 7500

Status Category

Export House Star Export House Trading House Star Trading House Premier Trading

House

Export Performance(FOB value-Rs.Cr.)

20 100 500 2500 7500

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Manner of receipt and payment Realization and repatriation of export

proceeds Foreign currency accounts Advance payment against exports Consignment exports Short shipment and shutout shipment Export claims Extension of time, write off and refund of

export proceeds

Manner of receipt and payment Realization and repatriation of export

proceeds Foreign currency accounts Advance payment against exports Consignment exports Short shipment and shutout shipment Export claims Extension of time, write off and refund of

export proceeds

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Specific Identification number Custom clearance forms:-

◦ GR◦ SDF◦ PP◦ SOFTEX◦ Submission of Shipping documents by exporters◦ Return of documents to exporters

Specific Identification number Custom clearance forms:-

◦ GR◦ SDF◦ PP◦ SOFTEX◦ Submission of Shipping documents by exporters◦ Return of documents to exporters

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Import trade is regulated by:-


Import trade is regulated by:-


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Import License Time limit for settlement of import payment Import of foreign exchange into India Import of Indian currency Advance remittances for import of goods and

services Evidence of import Merchanting trade

Import License Time limit for settlement of import payment Import of foreign exchange into India Import of Indian currency Advance remittances for import of goods and

services Evidence of import Merchanting trade

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Know your customer (KYC)

Form A-1

Form A-2

Know your customer (KYC)

Form A-1

Form A-2

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BoP is the systematic and summery record ofa country’s economic and financialtransactions with the rest of the world over aperiod of time.

Economic transactions Residents and non-residents Flow statement Periodicity

BoP is the systematic and summery record ofa country’s economic and financialtransactions with the rest of the world over aperiod of time.

Economic transactions Residents and non-residents Flow statement Periodicity

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Current Account

Capital Account

Official Reserve Account

Current Account

Capital Account

Official Reserve Account

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In the economic sense, BoP is balanced onlywhen each segment balances by itself. Eachof these balance, when they are non-zero,indicates disequilibrium in the balance ofpayments.

Autonomous transactions Accommodating transactions

In the economic sense, BoP is balanced onlywhen each segment balances by itself. Eachof these balance, when they are non-zero,indicates disequilibrium in the balance ofpayments.

Autonomous transactions Accommodating transactions

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Imbalance in Current Account

Imbalance in Capital account

Imbalance in overall BoP

Imbalance in Current Account

Imbalance in Capital account

Imbalance in overall BoP

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Devaluation Deflation Exchange control Import restrictions Export promotions

Devaluation Deflation Exchange control Import restrictions Export promotions

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Convertibility of a currency refers to itsconvertibility into a foreign currency asdesired by its holder.

A currency is converted to effect remittanceswhich are broadly classified into twocategories:-

◦ Current account convertibility◦ Capital account convertibility

Convertibility of a currency refers to itsconvertibility into a foreign currency asdesired by its holder.

A currency is converted to effect remittanceswhich are broadly classified into twocategories:-

◦ Current account convertibility◦ Capital account convertibility

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BENEFITS◦ It makes available a large capital stock to supplement

domestic resources.◦ It allows residents to hold an internationally diversified

portfolio.◦ For global investors, CAC helps them to seek higher

returns by sharing risks. PITFALLS

◦ Fuller convertibility may lead to speculative short termtransactions

◦ Conversion of substantial part of local assets in foreigncurrency poses the threat of outwards flows in higherinterest rates which could destabilize economy

BENEFITS◦ It makes available a large capital stock to supplement

domestic resources.◦ It allows residents to hold an internationally diversified

portfolio.◦ For global investors, CAC helps them to seek higher

returns by sharing risks. PITFALLS

◦ Fuller convertibility may lead to speculative short termtransactions

◦ Conversion of substantial part of local assets in foreigncurrency poses the threat of outwards flows in higherinterest rates which could destabilize economy

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Shri S.S. Tarapore committee on Fuller CapitalAccount Convertibility recommended:◦ Liberalisation on remittances◦ Freeing of capital markets for Non Residents◦ Abolition of tax benefits for NRIs on deposits◦ Review of double taxation treaties◦ Increasing Limits to banks for borrowings from

external markets◦ Increasing external commercial borrowings limits

Shri S.S. Tarapore committee on Fuller CapitalAccount Convertibility recommended:◦ Liberalisation on remittances◦ Freeing of capital markets for Non Residents◦ Abolition of tax benefits for NRIs on deposits◦ Review of double taxation treaties◦ Increasing Limits to banks for borrowings from

external markets◦ Increasing external commercial borrowings limits

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Rupee is partially convertible in CapitalAccounts.

However the limits for various personalremittances as well for investments purposehas been increased over a period of time

Dual listings of shares is not allowed.

Rupee is partially convertible in CapitalAccounts.

However the limits for various personalremittances as well for investments purposehas been increased over a period of time

Dual listings of shares is not allowed.

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Release of Foreign Exchange per Financial Year

PURPOSE AMOUNT OF FOREIGN EXCHAGE

Private Visit $10000 equivalentEmployment Abroad $100000 equivalentImmigration $100000 equivalent

Studies $100000 equivalent or estimate from Instution Abroad whichever is higherBusiness Trip $25000 equivalent

Medical $100000 equivalent or estimate from Doctor Abroad whichever is higher

Cultral Tour As per sanction

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Limit - $75000 equivalent per F.Y. w.e.f 16th Aug2013.

Facility is available to all individuals includingminors

Scheme also include remittances towards gifts anddonation by a resident individual

Resident Individual is permitted to make a rupeegift/loan to NRI

Resident Individuals are free to acquire immovableproperty or shares or any other asset outside India

Bank should not extend any kind of Credit Limits toresident individual to facilitate remittances underthe scheme

Limit - $75000 equivalent per F.Y. w.e.f 16th Aug2013.

Facility is available to all individuals includingminors

Scheme also include remittances towards gifts anddonation by a resident individual

Resident Individual is permitted to make a rupeegift/loan to NRI

Resident Individuals are free to acquire immovableproperty or shares or any other asset outside India

Bank should not extend any kind of Credit Limits toresident individual to facilitate remittances underthe scheme

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RISK

Business Risk Financial RiskBusiness Risk

Strategic Risk CompetitionRisk

TechnologicalRisk

Financial Risk

Liquidity Risk Credit Risk Market Risk SettlementRisk

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TRANSACTION ORCONVERSION EXPOSURE

CONVERSION OF FOREIGNCURRENCY

RECEIVABLES/PAYABLES INTODOMESTIC CURRENCY

INCORPORATING FOREIGNASSETS, LIABILITIES AND

INCOME IN PARENT COMPANYFINANCIAL STATEMENTS

FOREIGN EXCHANGE EXPOSURE TRANSLATION ORACCOUNTING EXPOSURE

INCORPORATING FOREIGNASSETS, LIABILITIES AND

INCOME IN PARENT COMPANYFINANCIAL STATEMENTS

ECONOMIC OR OPERATINGEXPOSURE

EFFECT OF EXCHANGE RATEFLUCTUATIONS ON FUTURE

CASH FLOWS

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Transaction exposure deals with changes incash flows that result from existingcontractual obligations denominated inForeign currency.

It arises whenever the enterprise has foreigncurrency denominated receivables orpayables, entered and settled at differenttimings.

Transaction exposure deals with changes incash flows that result from existingcontractual obligations denominated inForeign currency.

It arises whenever the enterprise has foreigncurrency denominated receivables orpayables, entered and settled at differenttimings.

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Forward Contracts

Option Contracts

Futures

Swaps

Forward Contracts

Option Contracts

Futures

Swaps

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DEFINITION◦ A Forward Contract is an agreement between Bank

and Customer where Bank agrees to buy/sellforeign exchange at a future date at a rate fixed onthe date of contract.

◦ It is obligatory on the part of the customer to fulfillthe contract.

DEFINITION◦ A Forward Contract is an agreement between Bank

and Customer where Bank agrees to buy/sellforeign exchange at a future date at a rate fixed onthe date of contract.

◦ It is obligatory on the part of the customer to fulfillthe contract.

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Fixed date basis.

Option forward period basis.

Fixed date basis.

Option forward period basis.

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Cash - same day settlement

Tom – next working day settlement

Spot - second working day settlement

Forward – beyond second day settlement

Cash - same day settlement

Tom – next working day settlement

Spot - second working day settlement

Forward – beyond second day settlement

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Intervention currency-in our country, it is USDollars

Principle applied for obtaining cross rate iscalled chain rule

Intervention currency-in our country, it is USDollars

Principle applied for obtaining cross rate iscalled chain rule

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Purchasefrommerchant

Sale tomerchant

Interbank Spot SpotPrem./Dis. (+/-) ( +/-)Ex.Margin ( - ) ( + )Merchant rate ( = ) ( = )

Purchasefrommerchant

Sale tomerchant

Interbank Spot SpotPrem./Dis. (+/-) ( +/-)Ex.Margin ( - ) ( + )Merchant rate ( = ) ( = )

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USD/INR GBP/USD EURO/USD

Spot 55.6500/6700 1.6330/6340 1.2580/2590Fwd 1m 0800/0900 0022/0021 0078/0068

2m 1700/1900 0045/0043 0140/01203m 2600/2800 0067/0064 0200/01606m 5400/5700 0135/0130 0405/0385

USD/INR GBP/USD EURO/USD

Spot 55.6500/6700 1.6330/6340 1.2580/2590Fwd 1m 0800/0900 0022/0021 0078/0068

2m 1700/1900 0045/0043 0140/01203m 2600/2800 0067/0064 0200/01606m 5400/5700 0135/0130 0405/0385

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An Option confers on the buyer the eligibilityto buy or sell a sum of foreign currency at apredetermined rate on a future date withoutinvesting him with an obligation to do so.

On the due date the buyer of the option mayelect to buy/sell or he may choose to let it gounused.

An Option confers on the buyer the eligibilityto buy or sell a sum of foreign currency at apredetermined rate on a future date withoutinvesting him with an obligation to do so.

On the due date the buyer of the option mayelect to buy/sell or he may choose to let it gounused.

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Parties◦ Option Buyer◦ Option Seller

Call and Put Options◦ Call – Buyer has right to purchase the currency.◦ Put – Buyer has right to sell the currency.

Premium◦ Consideration for the seller to offer the right to the buyer

Strike Price◦ Exchange rate

Maturity◦ Date on which contract expires

Execution◦ When the Buyer can exercise his right.

Parties◦ Option Buyer◦ Option Seller

Call and Put Options◦ Call – Buyer has right to purchase the currency.◦ Put – Buyer has right to sell the currency.

Premium◦ Consideration for the seller to offer the right to the buyer

Strike Price◦ Exchange rate

Maturity◦ Date on which contract expires

Execution◦ When the Buyer can exercise his right.

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American Option◦ The Option Buyer can exercise his right on any day

during the currency of the contract.

European Option◦ The Option Buyer can exercise his rights only on its

maturity date.

American Option◦ The Option Buyer can exercise his right on any day

during the currency of the contract.

European Option◦ The Option Buyer can exercise his rights only on its

maturity date.

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Future Contract conveys the right to purchaseor sell a specified quantity of a foreigncurrency at a fixed exchange rate on aspecified future date.

Currency Future Contracts are traded inrecongnised stock exchanges.

Future Contract conveys the right to purchaseor sell a specified quantity of a foreigncurrency at a fixed exchange rate on aspecified future date.

Currency Future Contracts are traded inrecongnised stock exchanges.

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Currency Size Quotation Maturity Due Date Last Trading day Settlement price Settlement Trading hours Risk Management Measures

Currency Size Quotation Maturity Due Date Last Trading day Settlement price Settlement Trading hours Risk Management Measures

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Financial Swap is arrangement whereby the financial streams are exchangebetween two parties.

Types◦ Interest Rate Swaps◦ Currency Swaps

Financial Swap is arrangement whereby the financial streams are exchangebetween two parties.

Types◦ Interest Rate Swaps◦ Currency Swaps

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chhatwal_20.08.2013

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