exchange position and fund position

7/28/2019 Exchange Position and Fund Position

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Exchange position and

Fund Position


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Nostro- Vostro Accounts

Arrangement in which two correspondent banks (in different countries ) keep a local currency account for one another.

The system of nostro and vostro accountsfacilitates foreign exchange dealings andsettlements and allows the settlement of currency transactions between the Country's(Local)Bank and foreign banks.
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A nostro is our account of our money, heldby you

A vostro is our account of your money,held by us


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Nostro Account

Nostro accounts are usually in the currency of the foreign country. This allows for easy cashmanagement because currency doesn't need to

be converted. A nostro (means "ours" in Latin) account is an

account maintained by a Local bank with aforeign bank that allows the Local bank to buyforeign currency.


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Vostro Account

The account a correspondent bank, usually U.S.or UK, holds on behalf of a foreign bank. Alsoknown as a loro account.

A vostro (means "yours" in Latin) account is anaccount maintained by an overseas bank with aLocal bank that allows the overseas bank topurchase Local currency


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When X (Buyer) a trader in Base Country wantsto purchase Rs.5000 worth of goods by payingcash. Mr.X deposits the cash in his local bank inthe country's currency for the correspondingamount (Rs.5000) then a swift message is sentto the corresponding bank in the foreign countrywhere the local bank holds a NOSTRO account

requesting the bank to make the payment to Y(Seller) in his local currency i.e. INR. Thusfacilitating the trade between X & Y. IF Y wantedto buy something from X then the foreign bankwould complete the deal using their VOSTROaccount in X's country.


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NRI Accounts

There are two types of NRI( Non ResidentIndian ) accounts, namely non-repatriableaccounts and repatriation accounts.

Repatriable Accounts : Legally Indianrupees can be transferred back to foreigncurrency, that is money can be convertedto any foreign currency.

Non-Repatriable Accounts : Money cannotbe converted to any foreign currency.


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Repatriable Accounts

NRE Account ( Non-resident External Account )Savings, Current & Time Deposits FCNR Account ( Foreign Currency Non-resident

Bank Deposits) NRIs can avoid Risk of ForeignExchange fluctuations by keeping their overseasmoney in (FCNR) and you can convert backmoney to the foreign currency. The accountshould be opened by the non-resident accountholder. FCNR enable NRIs to earn good returnson their foreign currency earnings.
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NRE Account

A NRE (Non-resident External Accounts)account is a Rupee denominated account.Funds in NRE account is maintained inIndian rupees only. Any interest earned onthis account are exempt from tax


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NRO Account

A NRO (Non-Resident Ordinary) accountis a rupee denominated account. Foreigncurrency which you wish to deposit isconverted to Indian rupees at the time of money is deposited into the account. NROaccount is for NRIs who are having

income (like rent, dividend, pension) inIndia and to make local payments in IndianRupees for their genuine needs in India.


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Non-Repatriable Accounts

NRO Account ( Non-resident Ordinary Rupee Account ) Savings, Current and Time Deposits

Money once transferred from NRE account toNRO account loses its repatriability and hence,cannot be transferred back to NRE account.

NRO Accounts are used to deposit money bothin India and in foreign countries. All the depositsare held in Rupees.


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International Funds Transfer &

Overseas Payments


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TT Transfer

The sender completes and signs anApplication to purchase foreign currencywhich incorporates a Cross Border Foreign Exchange Transaction reportingform. The sender hands the applicationform and commercial documents, such as

a commercial invoice and transportdocument, to the bank.


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Based on the reason for the payment the

exchange control authorities specify whatdocuments the sender must give to thebank.

The bank uses a spot foreign exchangerate (telegraphic selling rate) to convertthe currency to foreign currency. Based onthe information given, the bank capturesthe data into their computer system andsends the SWIFT message.


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Advantages Speed SWIFT messages are delivered to the

receiving bank on the day of despatch. However,payment will be effected on value date only,which, in terms of international banking practice,is two business days from date of thetransaction.

Safety The SWIFT system has built-in securityfeatures which makes it a safe, reliable methodof transferring funds electronically

Convenience The simplicity of the operation

coupled with the efficiency and security factorsmake tele transmissions a convenient way of remitting funds internationally.


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MTs

The sender opens an online bankingsession and chooses the recipient, theamount to send, as well as a security

question and answer. The funds aredebited instantly, usually for a surcharge. An e-mail is then sent to the recipient, with

instructions on how to retrieve the fundsand answer the question, via a securewebsite.
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Methods of IN Trade Settlements

ADVANCE PAYMENT 1) Meaning:- An amount paid before it is

earned or incurred, for example, aprepayment by an importer to an exporter before goods are shipped, or a cashadvance for travel expenses.


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This method is the most desirable for theExporter, the Importer has to rely on the integrityof the Exporter and his capacity to execute theorder in time.

The entire transaction is financed by the Importer in this method thereby making the transactionmore costly for him; besides exposing theImporter to credit risks. On account of the abovefactors some countries have imposed ExchangeControl restriction regarding imports.


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In India advance payment is allowed only inrespect of import of books, periodicals, lifesaving payment apparatus, capital goods,

machinery and a few other items. 4) Advance payment amount can be made for

commercial purposes. If the following conditionare followed by the contract party.


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a) Documents produced by the partiesmust be evidence showing the demand of the overseas supplier.

b) Payment must be given to the overseassupplier.

c) Endorsement in the import licence if any.


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OPEN ACCOUNT SYTEM

It is just opposite to the Advance payment.1) Meaning: When an Exporter agrees to sell the

commodity on open account system to the

Importer, he despatches the goods to the buyer directly followed by the transport documents andan invoice requesting payment.

2) The Exporter loses control over the goodscompletely and leaves everything on theintegrity of the buyer.


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3) It is beneficiary to the Importer; the Exporter bears the entire financial and commercial risks.This system is normally resorted to when the

goods command buyer's market. 4) The commercial risk is, to some extent

minimised by taking a policy of ECGC. To takecare of the interest of the Indian Exporters, thereare Exchange Control restrictions imposed byRBI on open account export Sales.


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CONSIGNMENT SALE If you sell goods sold on consignment, you have

agreed to sell the goods without first buyingthose goods from the owner. Typically, your agreement specifies one of the following:

1) you agree to sell the goods on behalf of theowner as an agent2) you agree to purchase the goods for an agreed

price when you find a buyer.

There are no restrictions on what goods can besold on consignment. Goods regularly sold onconsignment include: motor vehicles, boats,wedding and formal dresses, cameras, farmmachinery and artworks.


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For Example: Selling on consignment meansgiving your car to someone else, usually a motor dealer, to sell on your behalf. Generally you setthe minimum price you will accept and thedealer will add a commission to it.

While the ownership and possession passes tothe buyer in the case of open account system,the ownership remains with the seller in the caseof consignment sale.

In the case of goods exported on consignmentbasis, freight and marine insurance must bearranged in India.


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DOCUMENTARY COLLECTION

The Exporter prepares the proper financial andcommercial document including the transportdocument and hands over to his Banker requesting in clear terms as to how thedocuments are to be delivered to the Importer atthe other end.

Four main parties to a documentary collectionare The Principal i.e.. the Exporter, TheRemitting Bank - The Exporter's Bank , TheCollecting Bank - The Bank in the Importer'scountry and The Importer , the consignee.


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Sight Draft

When the Exporter wants the Bank to hand over the export documents to the Importer onlyagainst payment immediately, the Bill of Exchange is called a Sight Draft.

Document against PaymentIn case the Exporter wishes to give some time (30days, 60 days, 90 days etc.) to the Importer toarrange for the funds but at the same time would

not like to part with the documents beforepayment of money, the appropriate bill of exchange is called a D/P (Document againstPayment).


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Banks act as intermediaries to collect paymentfrom the buyer in exchange for the transfer of documents that enable the holder to takepossession of the goods. The procedure iseasier than a documentary credit, and the bank

charges are lower. The bank, however, does notact as surety of payment but rather only ascollector of funds for documents.

For the seller and buyer, a documentary

collection falls between a documentary creditand open account in its desirability