2. WHAT ARE THE NEEDS OF CUSTOMERS IN
INTERNATIONAL BANKING BUSINESS?

3. THE NEEDS ARISE MAINLY IN THE FOLLOWING MATTERS:
INTERNATIONAL TRADE
INTERNATIONAL MONEY TRANSFER
NON-RESIDENT RUPEE ACCOUNTS
FOREIGN CURRENCY ACCOUNTS BOTH FOR RESIDENTS AND
NON-RESIDENTS

4. INTERNATIONAL TRADE INVOLVES-
EXPORTS
&
IMPORTS

5. INTERNATIONAL MONEY TRANSFER INVOLVES-
INWARD REMITTANCES FROM ABROAD
&
OUTWARD REMITTANCES FROM ABROAD

6. IN THE CASE OF EXPORT AND IMPORT TRADE THE
COMMERCIAL BANKS RENDER THE FOLLOWING SERVICES:
A. COLLECTION OF EXPORT AND IMPORT BILLS
B. EXTENDING FUNDED / NON-FUNDED FINANCIAL
ASSISTANCE FOR EXPORT AND IMPORT TRADE OF THE
CUSTOMERS

7. IN THE CASE OF INWARD REMITTANCES THE FOLLOWING
SERVICES ARE RENDERED BY THE BANKS-
A. ENCASHMENT OF FOREIGN CURRENCY NOTES
B. ENCASHMENT OF FOREIGN CURRENCY TRAVELLERS
CHEQUES
C. PAYMENT OF INWARD SWIFT TRANSFERS FROM ABROAD
D. COLLECTION / PURCHASE OF CHEQUES/DRAFTS
DENOMINATED IN FOREIGN CURRENCY

8. IN THE CASE OF OUTWARD REMITTANCES
THE FOLLOWING SERVICES ARE RENDERED
BY THE BANKS-
A. SALE OF FOREIGN CURRENCY NOTES
B. SALE OF FOREIGN CURRENCY TRAVELLERS
CHEQUES
C. SALE OF FOREIGN CURRENCY DEMAND
DRAFTS
D. SENDING OUTWARD REMITTANCES TO
FOREIGN COUNTRIES IN FOREIGN
CURRENCIES (SWIFT TRASNFERS)

9. OTHER SERVICES INCLUDE-
A. OPENING ACCOUNTS IN THE NAMES OF NON-
RESIDENTS
B. OPENING ACCOUNTS IN FOREIGN CURRENCY IN THE
NAMES OF RESIDENTS
C. EXTENDING FOREIGN CURRENCY LOANS TO BOTH
RESIDENTS AND NON-RESIDENTS

10. FUNDAMENTAL DEFINITIONS
Currency - Any form of money issued by a government or
central bank and used as legal tender and a
basis for trade.
Exports – It means taking out of home country to a place
outside home country any goods or provision of
services from India to any person outside India.
Foreign Currency- Any form of money issued by a
government or central bank other than the
home country, used as Legal tender and a basis
for trade.

11. Foreign Exchange – It means and includes:
deposits, credits and balances payable in any foreign
currency drafts, travellers cheques, letters of credit or
bills of exchange, expressed or drawn in Indian currency
but payable in any foreign currency, drafts, travellers
cheques, letters of credit or bills of exchange drawn by
banks, institutions or persons outside India, but payable
in Indian Currency.
Import – Import means bringing into home country any goods or
services from another country.
LIBOR - The London Inter-Bank Offered Rate. Banks use LIBOR
when
borrowing from another bank.

12. SWIFT- This is acronym for Society for World Wide Interbank
Financial Telecommunication. It is a co-operative society
registered in Brussels. It enables the member banks to
transact between themseklves quickly (i) international
payments (funds transfer) and (2) messages connected
with international banking (especially for letters of credit)
Traveller’s Cheque- It is an instrument used for travel
purposes. Branded traveller’s cheques (American Express,
Thomas Cook etc.,) in different currencies and in
denominations are sold by authorised agents like banks
and money changers. The traveller purchases them. He
should sign the instrument at the appropriate place in
front of the seller. He should once again sign at the
specified place in front of the person encashing the
traveller cheque at a different centre, usually a banker or
a money changer, to get the currency notes of his choice.

13. A.Ds
POLICY
RBI FED
DIRECTIVES
FEMA 1999

14. The Foreign Exchange Management Act, 1999 has come
into force with effect from the 1st June 2000. As from
the same date (1.6.2000) the Foreign Exchange
Regulation Act 1973 (FERA 1973), which was in
operation for about 27 years, stands repealed.
All foreign exchange transactions which take place from
the 1st June 2000 onwards will be governed by the
provisions of the new law Foreign Exchange
Management Act 1999, (FEMA 1999) and the Rules,
Regulations, Notifications, Directions and Orders issued/
framed under the new Act.
The objective of the FEMA is “ to facilitate external
trade and payments and to promote the orderly
development and maintenance of foreign exchange
market in India”.

15. Authorised Person:
Reserve Bank of India is empowered to grant
authorization to any person to deal in foreign exchange
or in foreign securities. The persons so authorised by
RBI will be known as authorised dealers in foreign
exchange or authorised moneychangers. RBI has powers
to revoke such authorizations in public interest at any
later date

16. Capital account transactions:
Investments in India by persons resident outside India,
investments outside India by persons who are resident
in India, lending and borrowing between residents and
non-residents (in foreign currency or in Indian rupees),
purchase of immovable property situated in India by
persons resident outside India, purchase of immovable
property situated outside India by persons who are
resident in India are some of the important items falling
under the category of capital account transactions.

17. Current account transactions:
Transactions other than capital account transactions fall
under the category of current account transactions.
Examples:
a. Those relating to export trade and import trade.
b. Release of exchange for foreign travel undertaken by
- businessmen
- students for higher studies
- individuals for medical treatment/checkup
abroad
- professionals like scientists, technocrats
etc. for attending conferences abroad individuals for
private visits/employment/ emigration abroad.
c. Gift / donation remittances

18. CURRENT ACCOUNT TRANSACTIONS - Transactions of a
current account in nature are freely allowed. At the
same time, in public interest, the Government of India
is empowered to place reasonable restrictions on
certain current account transactions. Accordingly a few
restrictions of a very reasonable nature have been
placed on current account transactions in public
interest.

19. Responsibilities of authorised dealers:
Reserve Bank of India has delegated wide powers to authorised
dealers for allowing outward remittances in foreign exchange.
At the same time, authorised dealers are accountable to RBI
for each transaction put through by them under the delegated
authority. Applications, declarations and other documents
obtained from customers at the time of putting through the
transactions must be preserved by authorised dealers and
should be made available to RBI for verification purposes
whenever required. Authorised dealers are free to call for
such documents from customers as may be required by them
for allowing outward remittances in foreign exchange. If a
transaction cannot be allowed for want of adequate
documentation or for any other reason such refusal should be
conveyed to the applicant in writing by the authorised dealer
mentioning the reasons for the refusal.

20. EXPORT AND IMPORT TRADE ARE GOVERNED BY
FOREIGN TRADE POLICY (FTP) ANNOUNCED
BY DIRECTOR GENERAL OF FOREIGN TRADE
(DGFT)

21. FTP WILL LIST OUT-
A. ITEMS THAT COULD BE FREELY EXPORTED
AND IMPORTED WITHOUT ANY RESTRICTION
B. ITEMS THAT COULD BE EXPORTED OR
IMPORTED SUBJECT TO CERTAIN RULES
AND REGULATIONS OF DGFT
C. ITEMS THAT ARE BANNED FOR EXPORT AND
IMPORT

22. FEMA 1999 AND RBI DIRECTIVES WILL
REGULATE THE MODE OF MONETRY
SETTLEMENT FOR EXPORT AND IMPORT
TRADE
FEDAI RULES AND REGULATIONS WILL STATE
THE GROUND RULES THAT ARE TO BE
FOLLOWED BY A.Ds WHILE HANDLING
EXPORT AND IMPORT BUSINESS

23.  CONVERSION OF ONE CURRENCY INTO
ANOTHER
 PROTECTION AGAINST FOREIGN EXCHANGE
RISK

24.  EXCHANGE RATE
THE RATE AT WHICH ONE CURRENCY IS EXCHANGED
INTO ANOTHER IS CALLED THE EXCHANGE RATE.

25.  CURRENCY CONVERSION
 SETTLEMENT OF INTERNATIONAL TRADE
AND SERVICE
 LENDING, BORROWING AND INVESTMENT
 SPECULATION

26.  EXCHANGE RATE DETERMINATION
 DEMAND AND SUPPLY FOR THE CURRENCY
 PURCHASING POWER PARITY
 MONEY SUPPLY AND INFLATION

27. FOREIGN EXCHANGE MARKET
- MARKET WHERE FOREIGN CURRENCIES ARE BEING
BOUGHT AND SOLD AT VARIOUS EXCHANGE RATES
&
FOREIGN MONEY MARKET
- MARKET WHERE FOREIGN CURRENCIES ARE BEING
BORROWED AND LENT AT VARIOUS INTEREST RATES

28. SPOT EXCHANGE RATE
WHEN TWO PARTIES AGREE TO EXCHANGE CURRENCY
AND EXECUTE THE DEAL IMMEDIATELY THE
TRANSACTION IS REFERRED TO AS A SPOT EXCHANGE
AND THE RATE APPLIED IS CALLED THE SPOT EXCHANGE
RATE

29. FORWARD EXCHANGE RATE
WHEN TWO PARTIES AGREE TO EXCHANGE CURRENCY
AND EXECUTE THE DEAL AFTER A LAPSE OF TIME BUT
FIX THE EXCHANGE RATE NOW ITSELF THEN THE
TRANSACTION IS REFERRED TO AS A FORWARD
TRANSACTION AND THE RATE APPLIED IS CALLED THE
FORWARD EXCHANGE RATE

30. FOREIGN EXCHANGE MARKET PARTICIPANTS
 INTERNATIONAL BANKS
 FINANCIAL INSTITUTIONS
 CORPORATES
 PUBLIC AT LARGE

31. CONVERTIBILITY OF A CURRENCY IS THE ABILITY TO
CONVERT THE CURRENCY INTO ANY OTHER CURRENCY
WITHOUT ANY GOVERNMENT RESTRICTION.

32. FOREX TRADE
EXPORTS IMPORTS
OTHER
REMITTANCES

33. FOREX TRADE
PROCEDURAL
MATTERS
REGULATORY
ASPECTS

34. PROCEDURAL
MATTERS
DOCUMENTATION CONVENTIONS

35. FOREX TRADE CREDIT
EXPORT CREDIT
PRE-SHIPMENT
CREDIT
POST-SHIPMENT
CREDIT
LOCAL CURRENCY FOREIGN CURRENCY LOCAL CURRENCY FOREIGN CURRENCY
LOAN
ACCOUNT
RUNNING
ACCOUNT
LOAN
ACCOUNT
RUNNING
ACCOUNT

36. FOREX TRADE CREDIT
POST-SHIPMENT
CREDIT
BILL PURCHASE
NOT UNDER
L.C.
USANCE
BILL DISCOUNT
NOT UNDER
L.C.
ADVANCE AGAINST
EXPORT BILL
SENT FOR
COLLECTION
BILL NEGOTIATION/
PAYMENT/
ACCEPTANCE
UNDER
L.C.

37. COMMON DOCUMENTS IN A BILL IN INTERNATIONAL TRADE
 BILL OF EXCHANGE
 COMMERCIAL INVOICE
 PACKING LIST
 CERTIFICATE OF ORIGIN
 INSPECTION CERTIFICATES
 TRANSPORT DOCUMENTS
 INSURANCE DOCUMENTS
 THE LIST IS NOT EXHAUSTIVE. THERE CAN BE EVER SO MANY
OTHER DOCUMENTS DEPENDING UPON THE REQUIREMENT OF
EACH INDIVIDUAL TRADE TRANSACTION

38. TRANSPORT DOCUMENTS
 BILL OF LADING
 AIRWAY BILL
 COMBINED TRANSPORT DOCUMENT
 ROAD,RAIL AND INLAND WATERWAY TRANSPORT DOCUMENT
 POSTAL RECEIPT/COURIER RECEIPT
 TRANSPORT DOCUMENT ISSUED BY FREIGHT FORWARDERS

39. INSURANCE DOCUMENTS
 INSURANCE COVER NOTE
 INSURANCE POLICY
o OPEN POLICY
o SPECIFIC POLICY

40. INTERNATIONAL TRADE SETTLEMENT
 CONTRACT OF SALE/ORDER
 LETTERS OF CREDIT