14 December, 2010


Banks play a very important role in affecting foreign exchange transaction of a country. Mainly transactions with overseas countries are respect of imports, exports and foreign remittance come under the purview of foreign exchange transactions. Banks are the vital sector by which such transactions are effected / settled. Central Bank records all sorts of Foreign exchange transaction and therefore, transaction effected by the Banks and other authorised quarters are to be reported regularly (viz. daily, fortnightly, monthly, quarterly, yearly etc.) to Central Bank.

We have been trained in detail, how, where and when we have to finance, we should finance to Import or to Export. From the entire setup of the course it has cleared that our training procedure is divided in to four modules and they are :-

i) International Trade : Import & Export.
ii) Foreign Exchange related banking terms & rules.
iii) Foreign Exchange Rate & Foreign Remittance.
iv) Practical training by visiting authorised dealer Branches (Foeign Exchange Branch, Dhaka) of our Bank.
Foreign exchange transaction is classified according to their activities.


Functions of Foreign Exchange Department:

01.    L/C opening
02.    L/C Amendment
03.    Sanctioning PAD, LIM, LATR
04.    T. C issuing
05.    Foreign Bill Purchase
06.    Local Bill Purchase
07.    Foreign Remittance
08.    FC A/C maintaining
09.    Foreign currency remitting

Foreign Exchange Mechanism:-
01)    L/C opening
02)    Issue the L/C by issuing Bank and send to advising bank
03)    Advised and or confirm the L/C by Advising and Add Confirming Bank
04)    Submit the documents to Negotiating Bank by export
05)    The Negotiating Bank makes payment
06)    The Negotiating Bank forward/sends documents to Issuing Bank
07)    Issuing Bank makes payment to Negotiating bank
08)    A Issuing Bank instructs to pay or reimburse the paying bank and paying bank makes payment or reimburse to the negotiating bank
09)    Issuing bank sends documents to the importer
10)    The importer makes payment

Organization Structure of Foreign Exchange is mentioned below:-

International Trade: Import & Export:

International trade is the trade between a country with the rest of the world. Now we live in a global economy. In such an age of globalization each country has free access to the market of other with quality goods and services. we know that all tariff and non-tariff barriers thereof have been removed in 2002 to expedite this globalization process. In the international trade, banking system must play its specific role because it is the connecting unit between all trades. It acts as a media between two parties, one is the buyer and another is seller and all international transaction mainly performed by these two parties. In our country, among the banks only the authorized dealer branches can deal with Foreign business. A branch of a bank having adequate manpower, reasonable Foreign Exchange Business and compliance of the rules and regulations of Central Bank can apply to be an authorized dealer. If Central Bank grant it and give the permission or license, then the branch can deal with Foreign Exchange Business.

International trade has two components – such as Import & Export.

To handle of international transaction in a sound and efficient manner there must have a written contractbetween the buyer & seller. For international trading purpose a Bank or Banks may involved in this contract and then the contract renamed into a letter of credit. It is the media under which the international trades are concluded.

Definition of Letter of Credit:

Letter of Credit or Documentary credit is a written and conditional undertaking by issuing Bank on behalf of applicant (Importer) in favour of beneficary at the request and on the instruction of the buyer (applicant) to pay at sight or at a determinable future date upto stated sum of money within a prescribe time limit and against stipulated documents are unconfirmity with the terms of the credit.

Type of L/C offered:

The Letter of Credit can be many types, but in practice in the most of the cases irrevocable confirmed documentary letter of credit is used. Irrevocable confirmed documentary letter of credit gives the double assurance of payment, since it represents both undertaking of the issuing bank and the confirming bank. The different types of letter of credit are as follows:-

(i)    Revocable letter of credit
(ii)    Irrevocable letter of credit
(iii)    Clean letter of credit
(iv)    Sight letter of credit
(v)    Deferred/usance payment letter of credit
(vi)    Revolving letter of credit
(vii)    Back to Back letter of credit
(viii)    Transferable letter of credit
(ix)    Red clause letter of credit
(x)    Green clause letter of credit

Parties involved to a L/C:

There are number of parties involved in a letter of credit and the rights and obligation of the different involved parties will differ from each other. The involved parties to a letter of credit are named below:-
01)    The Applicant/The importer/The buyer
02)    Opening bank/Issuing bank
03)    The beneficiary/The Exporter/The seller
04)    The Advising Bank/The transmitting bank/The notifying bank
05)    The Confirming Bank
06)    The Negotiating bank
07)    The Reimbursing Bank/Paying Bank

Characteristics of the importer who wants to open a letter of credit:-
  • Must have an A/C in the branch
  •  Must be a member of the Chamber of Commerce
  •  Must be a TIN holder
  •  Must have IRC

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