MODUE_1_TRADE PRODUCTS AND SERVICES

Introduction to Trade Finance.

1. Exchange of Goods, services, and other resources between two economies/
countries is otherwise known as_ TRADE____________
2. Products/Services sold to the global market/ other country is known as
__EXPORT_________
3. Custodian of FOREX in India is____RBI___________
4. Issuing Export/Import Code (IEC) is a function of ____ DGFT__________
5. The three major components of trade are(1 (1) IMPORTER (2) EXPORTER and (3)
REGULATARY BODIES
6. Trade finance bridges the conflicting interests of __ EXPORTERS &
IMPORTERS______
7. The role of a bank as a financer in trade finance covers providing the following.
 HANDLING OF DOCUMENTS BY BOTH SELLER’S & BUYER’S BANK
 PRE‐AS WELL AS POST SHIPMENT FINANCE TO THE EXPORTER
 BUYER’S CREDIT TO IMPORTER
 FINANCING THE SALE BY IMPORTER’S BANK
 PAYMENT ASSURANCE THROUGH NON‐FUND FACILITY
Eco System of Export and Import
1. ___RBI___________permits Authorized Dealers to deal in FOREX
2. Foreign Exchange is a mechanism by which one foreign currency is converted into
other currency.__________________.
3. Foreign Exchange Market is a __9 am to 5 pm________ hours market.
4. ___COMMERCIAL BANKS___________ are the major players in the Forex Market.
5. AD Category I license under Section 10 of FEMA is issued to scheduled commercial
banks to undertake all types of foreign exchange transactions____
6. Authorized Dealers who are allowed to deal only in Non-Trade Transactions are
categorized as_AD 2 CATEGORY_____________
7. FFMCs are permitted to _handle all travel related transactions _(both purchase &
sale)
& certain transactions covered under LRS of RBI. ____.
8. Nostro accounts are maintained in Category_ AD 1 CATEGORY___ branch of a bank in
India.
9. DGFT is a part of ___MINISTRY OF COMMERCE & INDUSTRY_____ Ministry.
10. _FORMULATES THE FOREIGN TRADE POLICY_ is issued by DGFT to facilitate
movement of goods & services from/to India.
11. Negative list or non-negative list goods & services that can be imported or exported
is covered in FOREIGN TRADE POLICY.
12. The Forex Market is regulated by RBI, DGFT,  FEDAI and ICC_.

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13. The business hours and other guidelines on handling forex transactions to ADs is
issued by RBI. 
14. FEDAI is an association of all BANKS DEALING IN FOREIGN EXCHANGE MARKET
15. FEMA is administered by ___RBI______.
16. Training of bank personnel in areas of FOREX is one of the functions of
__FEDAI_________
17. FOREX brokers get their accreditation from____ FEDAI______
18. ___ECGC______ provides Credit Risk Insurance Cover to exporters
19. C category branches route FOREX transactions through__B CATEGORY
BRANCHES_________
20. RMC is allowed only to ___BUY_____ FOREX

Providing Complete Banking Solutions

1. M/s Supreme Exports have a well-maintained Current Account with your branch.
They are into export business of garments. Their orders we normally small value of
USD 25000 to USD 50000
Now they are on the verge of finalising a large order to the extent of USD 500,000 for
export to Germany over a period of 1 year. The MD is seeking your advice on the
options. He is also travelling to Germany to sign the agreement in the next 10 days.
Presently he is with another PSU Bank for his Trade transactions. Offer him step
wise solutions /products so that he also moves his Trade transactions to ICICI Bank
2. Describe the 4 main Services offered by ICICI Bank for Trade customers
The unique selling proposition of ICICI Bank are as follows:
 Quick remittances in multiple currencies
 Remit money through wire transfer & Foreign currency DD
 Remittance facility available through online channel
 Facilities also available to NON‐ICICI bank users
3. What are the various Remittance facilities provided by ICICI Bank?
Remittance through online channel & wire transfer 
4. List out the major features of the Trade Roaming Current Account (TRCA)
 No MAB commitment for Trade Online Roaming Current Account
 However, non‐maintenance of QTP attracts penalty
 TRCA offers 5 Product variants & the minimum QTP commitment in all these
products ranges from USD 25,000 to USD 1,500,000
 Door step banking facilities available
Trade Products and Services
1. e-LC, e-BG, e-DOCS, e-SOFTEX, i-DOCS, i-FIRS, i-BoE and e-WAY BILL are made
available through ___ONLINE _______ platform.
2. I- Docs enables the client to download_THE BILL OF ENTRIES PENDING FOR
PAYMENT
AND INITIATE THE SAME_

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3. The facility of matching the outward remittance with the Bill of Entry is available
through__ i‐BOE_______
4. The utility which helps an exporter to manage the Export Invoice life cycle of an
Export is __e‐SOFTEX______
5. Access to the repository of all the advised letter of Credits is available through _ e‐
LC________
6. Information regarding sanctioned limits and outstanding is available through__FX
ONLINE_______
7. FX on call is a call center-based FOREX service channel to SMALL & MEDIUM
ENTERPRISES who do not have access to THE TREASURY DESK
Documents in trade
1. Mr. Dinesh, the Finance Manager in an Electrical goods manufacturing company
approaches you to find out what are the documents he should stipulate for
importing certain components from Germany. What would you advise him? The
goods being imported are small components.
I will advise him about the various documents required in trading:
 FINANCIAL DOCUMENTS‐ these documents specify the mode and the
time period for settlement.
 INSURANCE DOCUMENTS‐ these documents provide coverage for
loss/damage of goods.
 COMMERCIAL DOCUMENTS‐ these documents establish the terms of
contract between buyer & seller.
 TRANSPORT DOCUMENTS‐ these documents carry title to goods.
 REGULATORY DOCUMENTS‐ these documents are the requirements of
the
regulators who monitors the trade transaction.
2. What are the various commercial documents & regulatory documents which an
Exporter has to submit to the bank?

COMMERCIAL DOCUMENTS:  
 PURCHASE ORDER
 PRO‐FORMA INVOICE
 COMMERCIAL INVOICE
 CERTIFICATE OF ANALYSIS
 WEIGHT CERTIFICATE
 INSPECTION CERTIFICATE
 PACKING LIST
REGULATORY DOCUMENTS: 

 EXPORT DECLARATION FORM/ SOFTEX FORM
 ELECTRONIC DATA INTERCHANGE
 BILL OF ENTRY
 A 2 FORM
 EXPORT/IMPORT LICENSE
 CERTIFICATE OF ORIGIN

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 3. The documents that establish the terms of a contract between buyer and seller are
COMMERCIAL DOCUMENTS
4. Financial documents enable SETTLEMENT OF FUNDS
5. Proforma invoice is an example of COMERCIAL DOCUMENTS
6. Most important financial document in trade is BILL OF EXCHANGE
7. Bill of lading is a TRANSPORT document
8. Proof of goods imported into India is established by BILL OF ENTRY
9. Classify the following documents under appropriate category
a. Purchase Order: COMMERCIAL DOCUMENT
b. Bill of Lading: TRANSPORT DOCUMENT
c. Bill of Exchange: FINANCIAL DOCUMENT
d. Bill of Entry: REGULATORY DOCUMENT
e. Pro‐forma Invoice: COMMERCIAL DOCUMENT
f. EDF: REGULATORY DOCUMENT
g. Lorry Receipt: TRANSPORT DOCUMENT
h. Commercial Invoice: COMMERCIAL DOCUMENT
i. Postal Receipt: TRANSPORT DOCUMENT
j. Cover Note: INSURANCE DOCUMENT
k. Certificate of Analysis: COMMERCIAL DOCUMENT
l. Softex: REGULATORY DOCUMENT
m. Export Import License: REGULATORY DOCUMENT
n. Airway Bill: TRANSPORT DOCUMENT
o. Certificate of Analysis: COMMERCIAL DOCUMENT
p. Insurance Certificate: INSURANCE DOCUMENT
q. Certificate of origin: REGULATORY DOCUMENT
r. Weight Certificate: COMMERCIAL DOCUMENT
s. Insurance Policy: INSURANCE DOCUMENT
t. Inspection Certificate: COMMERCIAL DOCUMENT
u. Packing List: COMMERCIAL DOCUMENT
v. A2 form: REGULATORY DOCUMENT

Inward and Outward Remittances

1. Inward and out ward transactions fall broadly under the categories TRADE
TRANSACTIONS and NON‐TRADE TRANSACTIONS
2. Classify the following transactions under appropriate category.

Transaction Trade/Non-Trade Inward/outward

Export proceeds received TRADE INWARD
Remittance from NRI Non-Trade INWARD
Advance Payment for Import TRADE  OUTWARD
Investments received from Abroad NON‐TRADE INWARD
Remittance towards educational expenses NON‐TRADE OUTWARD
sent
Advance payment received from importers TRADE INWARD

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 abroad
Purchase of FCTC by a customer NON‐TRADE INWARD

3. The limit under Liberalized Remittance Scheme is USD 2,50,000 Per FY (LRS)

4. List out at-least five purposes which are covered under LRS scheme
 LRS is all about remitting money from our country to other country in foreign 
currency. 
 Under LRS scheme, all resident are allowed to freely remit up to USD 2,50,000 
Per FY.
 There are  no  restrictions  on  the  frequency  of  remittances. However,  total 
remittance should not exceed USD 2,50,000 per FY. 
 There are  no  restrictions  on  the  frequency  of  remittances. However,  total 
remittance should not exceed USD 2,50,000 per FY. 
 In case  remitter is a minor,  the minor’s natural guardian must countersign 
the LRS declaration form.
5. ICICI bank maintains an account with Bank of New York in New York in domestic
currency. This account is NOSTRO ACCOUNT for ICICI bank and VOSTRO ACCOUNT for
Bank of New York.

Life Cycle of Exporters and Importers

1. What is meant by Letter of Credit?
An undertaking issued by a bank on behalf of the buyer to pay the seller for the
goods supplied provided that the terms & conditions are fulfilled.
2. Enlist the different parties to a Letter of Credit.
APPLICANT, BENEFICIARY, ISSUING BANK, ADVISING BANK, CONFIRMING BANK,
NEGOTIATING BANK, REIMBURSING BANK.
3. What do you mean by “adding Confirmation to a letter of Credit”?
It means that in case the advising bank is unable to make the payment the
confirming bank will make it. It also confirms the existence of the bank in the
exporter’s country.
4. What do you understand by the statement – Bank’s deal in documents and not
in
goods?
Banks are only responsible for the scrutinization of the documents and providing
funds if needed. Banks don’t deal with export/ import of goods directly.
5. Our customer is exporting Spices to London but tells his buyers that the transaction
would be through LC only. Why? Who should open the LC?
Transactions through LC provide credit assurance to the exporters. LC should be
opened by the importers which then will be transferred to the exporter through his
bank.
6. Our customer is exporting to Argentina and tells his buyer that the LC should
be
confirmed. Why our exporter‐customer wants the LC to be “Confirmed”?
To avoid any discrepancies in payment

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7. What are the various stages in a “Life Cycle of an Importer or Exporter”
 Buyer & seller getting in to the contract
 The importer will request his bank for LC.
 Importer’s bank issues LC & sends it to advising bank.
 Advising bank advised the LC to exporter
 Exporter ships the goods
 Exporters submit the documents in his bank
 Exporter’s bank sends the document to the issuing bank
 Issuing bank scrutinizes it & hands it over to the importer.
 Importer pays/ accepts to pay for the goods.
8. Describe the trade cycle from the point of view of Export transactions.
 Receives LC from his bank
 Approaches his lending bank for pre‐shipment finance if needed.
 Manufactures and keeps the goods ready.
 Ships the goods & submits the documents
 The negotiating bank forward the documents to the issuing bank after
scrutinization.
 The importer will make the payment.
9. List out the steps in the Import transactions.
 Importer approaches his bank with the purchase agreement &
proforma invoice
 Issuing bank issues LC
 LC is transmitted to advising bank
 The exporter receives LC & prepares shipment
 The documents are received by importer’s bank & hands over to the importer
 Importer accepts/pays for the documents and the goods are released.
10. Describe the various roles played by banks in a LC transaction.
 LC ISSUING BANK: Importer’s Bank
 ADVISING BANK: An intermediary in exporter’s country
 CONFIRMING BANK: Another intermediary in exporter’s country if the
exporter insists on confirmation
 NEGOTIATING BANK: Exporter’s bank
 REIMBURSING BANK: Nominated in LC for payment to Negotiating Bank
11. Name the regulators in an Import/Export transaction and briefly mention their role.
DIRECT GENERAL OF FOREIGN TRADE:
 Operates under MINISTRY OF COMMERCE & INDUSTRY
 Formulates the Foreign Trade Policy
 Informs about goods which can or can’t be exported
 Issues Import/Export Code

FOREIGN EXCHANGE DEALER’S ASSOCIATION OF INDIA:

 Guidelines & rules for Forex Business.
 Training of bank personnel in areas of Foreign Exchange
 Announcement of periodical Exchange Rates

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  accreditation of Forex Broker
RESERVE BANK OF INDIA:
 Authority to issue various types of Forex license to AD.
 Lays down rules for release of exchange towards international trade
transactions
 Administers the FEMA 1999
INTERNATIONAL CHAMBER OF COMMERCE:
 The objective is to strengthen commercial tie among nations
 The international secretariat develops & carries out the ICC work
programmed

MODULE_2: REGULATRY COMPLIANCES IN TRADE FINANCE

A. FILL IN THE BLANKS WITH APPROPRITAE ANSWERS

1. DGFT is a part of MINISTRY OF COMMERCE& INDUSTRY

2. IEC is allotted by DGFT

3. FOREIGN TRADE POLICY is issued by DGFT to facilitate movement of goods &

services from/to India.

4. Negative list or non‐negative list goods & services that can be imported or

exported is covered in FOREIGN TRADE POLICY.

5. The current Foreign Trade Policy is extended up to 30 SEP 2021

6. Hand holding scheme meant for new importers & Exporters is NIRYAT BANDHU

7. Goods & Services which can be traded without any restriction are classified under

NON‐NEGATIVE List

8. An exporter needs prior authorization in respect of goods under NEGATIVE list

9. Crude oil is an example of goods under NEGATIVE LIST

10. ITC‐HS code comprises of 8 digits in India

11. ITC‐HS code helps the traders in IDENTIFICATION of goods

12. Restriction on export of national treasures is an example of principle of

RATRICTIONS

13. Currently IEC is the same as PAN NO

14. Business leaders who have excelled in the field of exports are recognized as

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STATUS HOLDER

15. The Export value for the purpose of SHE is arrived at based on TOTAL FOB of

exports

16. 100% retention of export proceeds in EEFC account is one of the privileges allowed

to STATUS HOLDER EXPORTERS

17. FEDAI is an association of BANKS DEALING IN FOREX in India

18. Normal Market hours as per FEDAI 9 AM TO 5 PM

19. AS per FEDAI Saturday is a NON‐WORKING DAY

20. NOOP means NET OVERNIGHT OPEN POSITION

21. A trade which has been established but not yet closed with an opposite trade is

known as OPEN POSITION

22. To consider FRIDAY as a known holiday in a week stretching from MONDAY to

FRIDAY, the holiday should be known at least on PRIOR PERIOD

23. NTP stands for NORMAL TRANSIT PERIOD

24. NTP for bills in FC and not under LC is 25 Days

25. NTP for bills drawn on Russia where reimbursement is received from RBI is 20 days

26. NTP for Fixed Due date bills is NA SINCE DUE DATE IS KNOWN ALREADY

27. Crystallization is the process of converting FOREIGN CURRENCY Liability into

INDIAN RUPEE LIABILITY

28. Crystallization happens at FORWARD CONTRACT RATE rate

29. If bill is realized after crystallization, then bank purchases the export proceeds at

BILLS SELLING RATE

30. Agreement to exchange one currency for another currency on a specific future

date at predetermined rate is called FORWARD CONTRACT

31. Exchange contracts should be for definite AMOUNT & PERIOD

32. If in a contract delivery is said to be made anytime between 10th and 20th of a

month, then it is a FORWARD contract.

33. In case of an early delivery difference between Forward Contract rate & Spot rate

is called FORWARD MARGIN

34. SWAP GAIN or Loss is the difference between SWAP RATE & FORWARD RATE

35. Import Bills are crystallized at BILLS SELLING rate

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36. Crystallization of Usance Import bills takes place on DUE DATE

37. Crystallization of Demand Import Bills is on 5TH day following THE DATE OF RECEIPT

OF DOCUMENTS AT THE LC OPENING BRANCH

38. Interest in Bills discounted to be recovered FROM IMPORTER

39. Settlement of all merchant transactions are rounded to NEAREST RUPEE

40. Custodian of FOREX is FEDAI

41. Administering FEMA is the responsibility of RBI

42. The applications used for tracking movement of goods and corresponding FOREX

are BLOOMBERG & OCTAFX

43. Dispute resolution in international trade is one of the functions of ICC

44. The ICC publication that deals with Bills Collection is URC522

45. INCOTERMS deal with COST, CONTROL and LIABILITY

46. SWIFT stands for SOCIETY OF WORLDWIDE INTERBANK FINANCIAL

TELECOMMUNICATION

47. BIC code consists of 8 OR 11 characters

48. The application that exchanges bilateral authentication keys in SWIFT is BIC

49. MT in SWIFT message stands for MESSAGE TYPE

50. SWIFT messages are identified by 3 digit number

B. CASE STUDIES: Analyse the following situation and answer the questions
given below.

1. Consider the following inputs

 On 10 September, you had opened one LC IN favor of a supplier in USA, covering
shipment of
A particular goods in the non‐ negative list.
 Date of shipment as per LC is 20th October 2020.
 Expected date of receipt of documents is 25 October 2020
 Likely due date of the Import bill is 3rd week of November.
 On 20 September 2020 DGFT removed the goods covered under LC from NON‐
NEGATIVE LIST
TO RESTRICTED LIST
On 21st September, your importer client calls on you to discuss the following issues:

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a) Now that the commodity has been shifted to restricted list, whether the bank can
remit the amount towards the import as per LC terms in the absence of Import
Authorization (Import License)
No, the bank cannot remit the amount in absence of import license as the
commodity is
under restricted list.

b) Would you advise the importer to obtain Import Authorization from DGFT
to enable
remittance?
Yes, Import Authorization from DGFT is needed to enable the remittance
procedures.

c) On arrival of goods, what is the Importer’s position with regard to customs

clearance in the
absence of Import Authorization?
In absence of Import authorization from DGFT, the import can’t be processed.

1. M/s. Super Prime Connections is one of your SME clients having satisfactory
transactions with
your bank. They receive import documents on collection basis regularly through your
branch, for
which the remittances are normally arranged through the current account
maintained with you.
On 15th July, one of the partners of the firm approached you for remittance of
USD25,000 in respect
of a usance Import bill falling due on the next day. On perusal of the Bill of Entry and
other documents,
it was found that the import has been cleared under Import Authorization issued by
DGFT. You advised
the client to submit the Exchange control purpose copy of the Import
Authorization for putting
through the remittance. Ongoing through the authorization, it was found that
the date of the
Authorization issued by DGFT is 10th June, whereas the date of shipment as
evidenced in the bill of
lading is 25th May. Issues to be addressed
a. Whether the import Authorization (Import license) was valid for the shipment?
Yes
b. Whether the bank can endorse the Import Authorization and arrange for the
remittance in
this case.
Yes

2. M/s. Jack & Jill Silks is a Trading House, an exporter of silk fabrics, with an
average export turnover

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of Rs.150 crores per year for the last 5 years. They have opened a current account
with you about 6 months back. They have been passing good export business
through the current account maintained with our bank. All the export bills have
been paid promptly. The firm does not enjoy
any credit facilities with you or any other Bank.
Today the accounts executive of the firm tendered a foreign cheque of USD 85,000
for an export bill
of USD 85,000 sent directly by them to the buyer. The firm is also giving the details
of the duplicate
EDF (downloadable through EDPMS) and a copy of the commercial invoice for USD
85,000. On enquiry
with the firm as to other documents related to the export bill like the Transport
document, packing
list, etc., the accounts Dept. of the firm informs you that the originals have been
directly sent to the
overseas buyer and photocopies are sent to you for the records of the Bank.

a. Can you accept this export bill on the strength of the photocopies?
No
b. Whether foreign cheque received by M/s. Jack & Jill Silks can be accepted to be in
order for
export realization/proceeds?
Yes
c. If yes, what supporting documents/letters have to be taken by the Bank?
Export documents, certificate from chartered accountant that the data has been
received

3. M/s Right & Co, a firm exporting regularly to one of its family members who has
business/shop
abroad, tenders a sight bill for USD 65,000 on Portugal and requests you to charge
interest only
for 7 days as his relative‐buyer is sure to pay the bill amount in a week from now.
a. Can you accept the request of the exporter? What is NTP?
NTP refers to the average period normally involved from date of negotiation/
purchase/
discount till the receipt of bill proceeds in the NOSTRO account of the bank
concerned.

b. Whether FEDAI deals with charging of interest on export bills and discuss the
applicability
in this case.
NO

c. What do you understand by upfront charges/Interest?

Upfront interest is the interest rates & limits applicable to a borrower as specified
in a credit card’s underwriting at the time of issuance

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4. On 28th November, Ms. Golden Exports, one of your exporter clients enjoying
various credit limits
with you, calls on you with the following requests:
a. He submits for purchasing a non‐LC sight export bill for USD 50,000 drawn on a
buyer in USA.
b. His export collection bill for USD 10,000 is realized and the proceeds have been
credited to
your USD NOSTRO account value 25th November.
c. His export bill for USD 30,000 originally purchased by you on 25th September and
falling due
on 20th November has remained unpaid and as such he has given a letter requesting
you to
crystalize today the liability in respect of this bill.
Identify the applicable rates for the above transactions and the respective Rupee
equivalents,
given the following;

USD TT buying Rate RS.69.10

USD TT buying Rate Rs.68.45(Rate that prevailed on 25th November )
USD TT selling Rate Rs.70.85
USD Bill Buying Rate Rs.68.60
Interest Rate Export Credit 12.25% p.a.
Ignore commission and other charges
BILLS BUYING RATE
RUPEE EQUIVALENT=> 68.45*50,000=>3,422,500

5. Our customer wants to import raw material from China. The Chinese seller is
insisting for Advance
payment of USD 100,000. Customer has requested for release of USD 100,000
towards advance
payment. Whether the importer’s request be complied? If yes, What Documents are
required.
M/s. Sunshine Exports is one of your exporter clients having a current account with
you for the
last 3 years. They do not enjoy any credit facility with you or with any other Bank.
They have been
always submitting the export bills on collection basis and all their export bills
have been paid
promptly. In respect of one export bill for USD 38000, payable at sight, the bill
has remained
unpaid and the overseas buyer has demanded reduction in invoice value by USD
3000, due to late
shipment of the consignment.
The Chief Accounts Officer of the firm calls on you and informs you that the firm is
agreeable to
allow this reduction of USD 3000 to the overseas buyer and requests you to
send suitable

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communication to the overseas bank (the collecting bank to whom the
documents have been
sent) for release of documents to the overseas buyer against payment of USD 35000
instead of
USD 38000 thereby reducing the invoice value by USD 3000.
As an authorized dealer, can you allow this reduction in invoice value even though it
is acceptable
to the exporter? In case your bank has purchased the export bill, what action would
you take?
Yes, we can allow reduction not exceeding 25% of invoice value
Export bill realized & repatriated to India. Exporter to surrender
proportionate incentive received if any

6. M/s. Tuscan Traders is an exporter client of your branch who are in the export
business for the
last 5 years. Their export realization in the last financial year has been Rs. 1.5 crores.
Though there
are no overdues in the branch, there are a few export collections bills which are not
realized and
outstanding for a long period ranging from 6 months to 2 years. You have advised
the exporter to
explore the possibilities of realizing these export bills since the goods have been
already taken
possession by the overseas buyer or auctioned by the customs abroad.
In respect of one such export bill for USD 13000, the exporter calls on your branch
and informs
you as follows;
 The bill has been outstanding for more than 15 months.
 The overseas buyer is reported to be absconding.
Since there is no possibility of realizing this export bill, the exporter is requesting you
to delete
this item from your books and stop making a follow up on this bill
Based on the above inputs, answer the following questions:

a. Since the bank has not financed against this export bill for USD 13000 is there
any
need for the bank to follow up the case with the overseas bank / exporter
client
regarding the realization of the Bill? NO

b. Since there is no possibility of receiving the payment towards the export bill
whether
the bank can delete this bill from the export bill register? NO, THEY SHOULD
MAINTAIN THE RECORD

c. What is the reason for the customer’s request to delete this item from our
outstanding overdue Export Bills? TO AVOID PENALTY

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 d. If the bank discounted this bill and on non‐payment on Due date crystalized
and recovered the amount from the exporter’s TCA, whether the Bank has to report
this item in XOS as the bill proceeds has not been received? YES
7. M/s. Queen Silks is a two‐star status holder exporter of silk fabrics with an
average export
turnover of Rs.180 crores per year for the last 5 years. They have opened a current
account with
you about 8 months back. They have been routing good export business
through the current
account maintained with our bank. All the export bills have been paid promptly. The
firm does not
enjoy any credit facilities with you or any other Bank.
Today, the accounts executive of the firm tendered to you the details of e EDF and a
copy of the
commercial invoice for USD 55000. On enquiry with the firm as to status other
documents related
to the export bill like the Transport document, packing list, etc., the accounts
department of the
firm informs you that the originals have been directly sent to the overseas buyer and
photocopies
are sent to you for the records of the bank. Further the CEO of the firm
informs you that the
payment towards this bill is expected to be received soon from the overseas buyer
a. Can you handle this export bill on the strength of the photocopies? Give
reasons for your answers.
NO, THE DOCUMENTS MUST GO THROUGH THE BANKS ONLY

b. Whether M/s. Queen Silks is in order in sending the documents directly to the
overseas buyer?
NO

b. Whether the Bank has to follow up for the realization of the export bill. YES

8. M/s. Alexander Exports is one of the exporter clients of your branch having an
average export turnover of Rs. 5 crores per year and a satisfactorily conducted
Current account with you for the last 5 years. They have received a cheque for USD
50,000/‐ from the overseas buyer in payment of one of the export bills handled by
your branch. The cheque is payable at Bank of America, USA. The exporter has
tendered the cheque to you with a request to purchase the cheque and provide
equivalent Indian rupees into the current account, as he needs the funds urgently to
purchase raw materials.

a. Will you purchase the Foreign currency cheque payable to M/s. Alexander
Exports? YES

b. Will you charge interest on the funds given? YES

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 c. How do you collect the amount of the cheque from Bank of America?
IN OUR NOSTRO ACCOUNT
c. In the event of return of the cheque unpaid how do you recover the amount
from M/s. Alexander Exports?

9. M/s. Supreme Traders is one of the Current account holders of your branch with
satisfactory transactions. Mr. Suraj, the proprietor of the firm, deals in Ready Made
garments. He desires to enter into Export Trade. He has taken the necessary
registration with the Director General of foreign Trade and also secured the
Importer‐Exporter Code (IEC) number. His brother, Mr. Gautham, has taken US
citizenship and has started a retail unit in Boston, USA. Incidentally Mr. Gautham in
his status as a Person of Indian origin (PIO) is having his NRE , NRO and FCNR
accounts with your branch M/s. Supreme Traders would like to Export Ready Made
Garments to Mr.Gautham.

a. Whether payment towards exports can be made out of NRE/NRO/FCNR account

holder of the overseas buyer? YES

b. Whether a cheque issued in Foreign Currency payable abroad on the personal

account of the overseas buyer can be accepted as payment towards exports? YES

c. Whether payment in Foreign Currency Cash, Foreign Currency Traveler’s Cheques

can be accepted as payment towards exports during the personal visit of the
overseas buyer? YES

Balance of Payments
Answer the following questions:

1. What is ‘Balance of payment’ (BOP)?

Balance of payment is an accounting system that systematically records all

economic
transactions between residents & government of a particular country with the
resident & government of the rest of the world during a given period.

2. What are the components of BOP?

CURRENT ACCOUNT
CAPITAL ACCOUNT
OFFICIAL RESERVE ACCOUNT

3. What is the usefulness of the BOP?

 Helps government to measure the flows of goods& services.

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 Impact of foreign transactions on national economy.
 Enables taking decisions as to purchase of financial assets.
 Help formulations of Fiscal & FOREX policies.

4. What is ‘trade deficit ’and ‘trade surpluses?

TRADE DEFICIT: A situation in which the value of goods a country imports is greater
than the value of goods it exports.

TRADE SURPLUS: A situation in which the value of goods a country exports is

greater
than the value of goods it imports.

5. Import of capital goods is classified under which of the accounts under BOP?

CURRENT ACCOUNT

6. The BOP statement is prepared by ……RBI (RBI / MOF)

7. The BOP format is devised by …RBI… (RBI/IMF/MOF)

Classify the following transactions under Balance of Payment

accounting system?

8. Mr. Kumar a NRI buys 1000 shares of ICICI Bank Ltd through ICICI securities to the
debit
of his NRE account with ICICI bank. ‐ CAPITAL ACCOUNT

9. Mr. Kumar –NRI‐ receives a dividend income of Rs 400,000/‐ on his various

investments in shares during 2016‐2017 and the same is being repatriated by him to
USA.
CAPITAL ACCOUNT

10. Mr. Kumar‐NRI‐ who is having business interest in India, imports equipment
worth Rs 25 lacs for his company in India from Germany.
CURRENT ACCOUNT

11. Mr. Kumar’s company in India (Mr. Kumar is an NRI) exports goods worth USD
250,000/‐ during 2016‐17
CURRENT ACCOUNT

12. Mr. Smith, a German national is appointed as G.M. of the company in India
owned by NRI. His salary is paid in EURO.
CURRENT ACCOUNT

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 13. Mr. Smith, a German national, buys furniture for his flat in India and pays for the
same from his debit card linked to his account in Frankfurt.
CURRENT ACCOUNT

14. Mr. Rakesh Sharma‐ senior citizen‐ receives Rs 1,000,000/‐ from his son Mr. Sunil
Sharma, a NRI. Mr. Rakesh Sharma utilizes this as advance payment for buying a flat
in his name Bangalore.
CURRENT ACCOUNT

15. Mr. Sunil Sharma remits Rs 25 lacs to his NRE account for buying a flat in India.
CURRENT ACCOUNT

16. M/S Prime Jewelers import gold worth USD 300,000/‐ during March 2017 for
manufacturing jewelry.
CURRENT ACCOUNT

17. M/S Prime Jewelers import gold worth USD 300,000/‐ during March 2017 and
export jeweler worth USD 350,000/‐ during January 2017.
CURRENT ACCOUNT

18. RBI imports gold worth USD 3.5 million during the financial year 2016‐2017.
CURRENT ACCOUNT

19. RBI buys US Treasury bonds for USD 2.50 billion during March 2017.
OFFICIAL RESERVE ACCOUNT

20. First Solution Technologies imports software worth USD 150,000/‐ for completing
their overseas project.
CURRENT ACCOUNT

21. ICICI Bank sells IBTC worth EURO 1 million during 2016‐2017.
CURRENT ACCOUNT

MODULE_3 EXCHANGE RATE MECHANISM

1. What are different types of Exchange Rates?

The different types of rates are as:

BUYING RATES: TT Buying rate
BILLS Buying rate
TC Buying rate
CHEQUE Buying rate

SELLING RATES: TT Selling rate

BILLS Selling rate

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 TC Selling rate
CURRENCY Selling rate
2. Are the Exchange Rates same for All Transactions? Same for All customers? Same
across All Banks? Give reasons, briefly.
All purchase & sales transactions are not alike and attract different rates.
For example, the process of issue of foreign DD is simple, banks get fund
immediately & banks also gets float funds till the DD is paid. Hence, rates are
lower. However, in case of an import bill, scrutiny of documents increases the
workload hence the rates are higher. Since Exchange rates are volatile in nature,
banks don’t expose themselves to exchange risk whenever bank does a
Purchase/Sale transactions with the customers, it will cover itself in the IB Rate by
maintaining a margin over IB Rate while quoting the Merchant Rate.

3. Fill in the blanks with appropriate Answer

a. The method of exchange rate quoted where Foreign Currency unit is fixed, and
Domestic Currency is variable is known as DIRECT METHOD.

b. If the Domestic currency unit is fixed and Foreign Currency is variable, then the
quotation is known as INDIRECT METHOD quote.

c. Inter‐Bank quotes are TWO way quotes.

d. In the IB quote, left hand side is the BUYING Rate.

e. Basic principle in Direct Exchange rate mechanism is “BUY Low, SELL High”.

f. Rates quoted in the FE Market on (T+2) basis is known as SPOT Rate.

g. Value today or ready transactions are known as VALUE CASH transactions.

h. Any rate quoted beyond (T+2) is called FORWARD Rate.

i. Rates quoted to customers are known as MERCHANT Rates.

j. The difference between the forward rate & spot rate is known as FORWARD
margin.

j. Rates quoted for value (T+1) is known as TOM Rate.

k. IB Rate will act as Base Rate for computation of Merchant Rates.

m. If the forward margin is in ascending order, then the Foreign Currency will be
in PREMIUM.

n. If the forward rate of a currency is less than spot rate, then the currency is said
to be in DISCOUNT.

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o. Conversion of domestic currency into foreign currency on behalf of an
importer would be a NON‐TRADE Transaction.

p. Inward Remittance credited to the Nostro will be converted to INR by applying

TT BUYING Rate.

q. Deal between same counterparties in which the same currency for the same
value is purchased and sold for different maturities is called TRADE
transaction.

r. In FE Market, all purchase or sale transactions are from the perspective of

Commercial BANKS only.

s. The Rate applicable for loading Foreign Currency Travel Card is TC SELLING
Rate.

t. The Rate applicable for retirement of an Import Bill is known as BILLS SELLING
Rate.

u. The Rate applicable for purchase of an Export Bill is known as BILLS BUYING
Rate.

v. All earlier purchase transactions requested to be cancelled are cancelled at

applicable TT BUYING Rate.

w. In case of Export Bills, Demand Bills are DP and Usance Bills are DA

x. Forward rate is arrived from the Spot Rate by adding the PREMIUM or
deducting the DISCOUNT.

4. State the Exchange rate applicable in the following cases:

a) Outward Remittance for USD 4,000 towards gift to be remitted through SWIFT for
credit of the remitter’s sons account with a Bank of America, in USA TT SELLING
RATE

b) Your NRI client requests you to convert USD 10,000‐ out of his FCNRB account
matured for payment and requests you to credit the same to his NRE SB account.
TT SELLING RATE

c) M/s. Nicholas Exports, one of your Exporter clients requests you to purchase
Export usance documents for USD 8,000 BILLS BUYING RATE

d) Import Bill for USD18,500 to be paid today BILLS SELLING RATE

e) M/s. Sunny Exports presents to you for cancellation the original FDD for USD 3,000

19
purchased from you last month. TT SELLING RATE

f) One of your NRI clients has a balance of Rs.200, 000 in his NRE SB account. He
wants to convert Rs. 150,000 from this NRE account into USD for creating a FCNRB
deposit for 3 years TT SELLING RATE
g) Mr. Rahul wants to get Foreign currency/cash of USD 2,000 to undertake a private
visit to USA CURRENCY SELLING RATE

h) Mr. Sunil seeks exchange of Euro FCTC for EUR 1,000 in connection with his visit to
Germany next week. CURRENCY SELLING RATE

i) Mr. Trivedi surrenders foreign currency cash of USD 500 being the unutilized
amount of cash released by you last month for his trip to USA.
CURRENCY BUYING RATE

j) Mrs. Parul surrenders foreign currency traveler’s cheques for GBP 600 being the
unutilized amount of exchange released by you last month in connection with her
trip to London TC BUYING RATE

k) Inward Remittance for USD 5200 received through SWIFT for credit of your client’s
SB account TT BUYING RATE

l) Your NRI client requests you to convert Rs.500000/‐ out of his NRE SB account and
invest in FCNRB for 5 years TT SELLING RATE

m) Advance Remittance towards Exports of USD30000 is received through SWIFT on

account of your Exporter client and credited to our Nostro a/c, to be paid to the
Exporter. TT BUYING RATE

n) M/s. Rajesh Exports requests you to purchase Export Sight documents of value
USD18375. TT BUYING RATE

o) Export Bill for USD 31234 to be crystallized today BILLS BUYING RATE

p) Export Bill for USD 50650 crystallized last month is now realized for USD 50600
BILLS BUYING RATE

q) Advance Remittance towards Imports for Euro13450 to be remitted by SWIFT

BILLS SELLING RATE

r) Import Bill Payment in respect of Import Bill of value GBP18750 to be retired.

BILLS SELLING RATE

s) Import Bill under L/C for USD27545 due today to be crystallized today
BILLS SELLING RATE

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t) Import bill for USD 35500 crystallized last week to be recovered today from
TRCA BILLS SELLING RATE

u) Your importer client desires to clear the liability in respect of the earlier
crystallized import Bill and provides sufficient balance in the Current account. BILLS
SELLING RATE
v) Export Collection Bill realized BILLS BUYING RATE

w) Export sight Bill presented for purchase BILLS BUYING RATE

x) Export Bill earlier discounted, taken up for crystallization BILLS BUYING RATE

y) Export Bill earlier crystallized, now realized BILLS BUYING RATE

z) Export Bill earlier discounted now required to be recovered from local rupee
resources as the bill is dishonored. BILLS BUYING RATE

5. From the quotes given bellow, identify the rates applicable for (i) transactions
involving buying of Forex and (ii) Selling of Forex

1. Our Bank is quoting in inter‐bank: USD 70.36/72.65 and for merchant

69.05/71.95
As the rule is, BUY LOW, SELL HIGH.
Buying of FOREX will be at USD 70.36 & Selling of FOREX will be at USD 72.65

2. Merchant Rates for today for bill transactions: USD 69.90/73.04

Buying will be at USD 69.90 & Selling will be at USD 73.04

6. From the Rates below, identify the nature of the transactions:

1. Bill Transactions: USD = 69.40/20 DISCOUNT

2. Currency – 68.10/69.80 PREMIUM
3. Clean Remittances: 68.80/40 DISCOUNT

7. A customer has both import payment transaction and Bill discounting on the
same day. Identify the rates to be quoted from the Card Rates given below.

GBP = 88.10/89.70
Bills selling rate, GBP= 89.70

Case Study‐1:

On 28th November, Ms. Golden Exports, one of your exporter clients enjoying
various credit
limits with you, calls on you with the following requests:
A. He submits for purchasing a non‐LC sight export bill for USD 50,000 drawn on
a buyer in USA.

21
 B. His export collection bill for USD 10,000 is realized and the proceeds have
been credited to your USD NOSTRO account with value 25th November.
C. His export bill for USD 30,000 originally purchased by you on 25th September
and falling due on 20th November has remained unpaid and as such he has
given a letter requesting you to crystalize the liability today in respect of this
bill.
Identify the applicable rates for the above transactions and the respective
Rupee equivalents, given the following;

 USD TT buying Rate RS.75.30

 USD TT buying Rate Rs.76.10 (Rate that prevailed on 25th November)
 USD TT selling Rate Rs.76.00
 USD Bill Buying Rate Rs.75.00
 Interest Rate Export Credit 12.00% p.a.

TT BUYING RATE
RUPEE EQUIVALENT=> 76.10*50,000=>3,805,000

Case Study_2:

You had sent a foreign cheque for collection amounting to USD 5835 and now get a
confirmation from your correspondent bank that the funds are credited to your
Nostro
account.
USD/INR quoted in the interbank market is as under:
Spot 1USD= 75.1450/3675

If the margin is 0.15%, Which rate will be applied (TT buying or selling?), what is the
Exchange Rate quoted per USD and what is the total amount to be credited to
party’s
account?

TT BUYING RATE
EXCHANGE RATE: {75.1450‐ (0.15%of 75.1450)}
=>75.0325
Total amount to be credited: 5835*75.0325 => 437,814.6375

Case Study_3:

On 15th Jan 2018, your customer enjoying Export Finance Limits, presents an export
bill documents for USD 10,505 and requests you to discount the bill. Usance period
of
the bill is 75 days from the date of acceptance. They requested you to credit their
Current Account with you.

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 On 15th January 2018, interbank quotation for USD‐INR is: $1= 66.3800 / 66.4750
Spot – Jan 66.1800 / 66.2950
Feb 65.8800 / 66.0050
Mar 65.4400 / 65.6250
April 64.8800 / 65.1000
May 64.3100 / 64.5500
The NTP = 25 days and the bank`s exchange margin is 0.15 %.

Answer the following:

1. Is the Currency at Premium or Discount?
PREMIUM
2. What is the exchange rate applied called?
Exchange rate is the rate at which one currency is converted into
another
3. When will be the notional Due date of the bill?
4. What exchange rate you will quote?
66.1800‐ (0.15% OF 66.1800) =>66.0805
5. What will be the rupee equivalent credited to Current Account?
66.0805*10,505=> 694,175.65
6. Assuming an interest rate of 10% p.a. for this bill discounting facility,
calculate the interest to be recovered.
Case Study_4:
One of your Savings Account Customer requests you for a Foreign Demand Draft for
USD 30,000, favoring M/S Royal Medical Centre, payable in USA for his
medical
treatment. He instructs you to debit his account for the rupee equivalent along with
the applicable charges.
The ongoing spot rate in the interbank market for USD/ INR is 1USD = INR 75.5500 /
8500.
The bank requires an exchange margin of 0.15%. The bank charges are Rs
0.30%,
subject to minimum charge of Rs. 200/‐ per FDD.
Calculate the rupee equivalent by quoting the exchange rate applicable and the total
amount to be debited to the customer`s account.

TT SELLING RATE
EXHANGE RATE: {75.8500 + (0.15% OF 75.8500)}
=>75.9625
TOTAL AMOUNT TO BE CREDITED=> 75.9625*30,000=> 2,278,875

Case Study_5:
You have received a DP Import Bill drawn on your Global Current Account Customer
for USD50,100 for an import transaction done with his overseas supplier from USA.
Assuming the ongoing spot rate in the interbank market for USD/ INR as 1USD = INR

23
75.3500 / 6500, calculate the rupee amount payable by the customer. The
bank
requires an exchange margin of 0.15 % for TT Selling & 0.20 % for Bills Selling.
Calculate the rupee equivalent by quoting the exchange rate applicable.

BILLS SELLING RATE

EXCHANGE RATE=> 75.6500+( 0.20% OF 75.6500)
=>75.8015
TOTAL AMOUNT TO BE CREDITED=> 75.8015* 50,100 => 3,797,655.15

Case Study_6:

Inter-Bank Spot Rates quoted by Reuters today:

Currency Rate Rate
USD -Spot 76.4850/4900
GBP -Spot 94.30/40
Premium /Discount USD GBP
Spot - June 76.7250/7900 94.60/70
Spot - July 76.9350/0300 94.84/00
Spot - August 77.1150/2100 95.02/18
Spot - September 77.2850/3900 95.20/36

Bank Margin for all transactions: Buying: 0.08% & Selling: 0.15% (Bill selling is based
on TT selling)

1. Compute the bill buying rate for 90 days from the date of shipment
(02/05/2020)
USD DA bill, submitted by your customer. 76.4850‐ (0.08% OF 76.4850)
=> 76.425
2. M/s. RS Impex wants to book a forward contract for their GBP import bill to
be paid on 30.09.2020. BILLS SELLING RATE

3. Received NRI remittance for GBP10000 to be credited to NRE account

of the customer.TT SELLING RATE

4. Your Manager wants to send USD10000 to his son towards living expenses
who is studying in California State University. TT SELLING RATE

5. One of your NRI customer remitted USD25000 to his parents SB accounts

with you towards family maintenance. TT BUYING RATE

6. One of your importer clients wants to retire a bill for GBP50000 today.

24
 BILLS SELLING RATE

7. Your friend wants to go abroad for business trip and wants a prepaid card
loaded with USD10000 and GBP5000. CURRENCY SELLING RATE

8. Your NRI customer wants his NRESB balance of Rs14,50,000/‐ to be

converted into FCNR deposit in USD for 3 years. TT SELLING RATE

Case Study_7:

M/S Srinivasa Textile Exporters have tendered a SIGHT export bill for EUR 60,000 on
15.02.2017. You have purchased the bill on 16.02.2017 and credited the rupee
equivalent after deducting interest at 13% per annum and other charges of Rs. 5,
500.
Bank charges overdue interest at 16%. The bill is realized and your Nostro account is
credited with EUR 59,700 on 22.03.2017. You have passed necessary entries in your
books on 25.03.2017. The exchange Rates for EUR / INR prevailing on different dates
are follows:
Date Bill Buying Bill Selling TT Selling
15.02.2017 70.40 70.75 71.10
16.02.2017 69.30 69.60 70.20
22.03.2017 69.20 69.50 70.10
25.03.2017 70.30 70.60 71.10

1. Which exchange rate you apply for purchase of this bill?

BILLS BUYING RATE

2. What net amount you credit to M/S Srinivasa Textile Exporters

account on 16.02.2017
4,158,000

Which exchange rate you will apply while recovering the short Realization from M/S
Srinivasa Textile Exporters
TT SELLING RATE

25