How to Make or Open an LC (Letter of Credit)?

General words of LC

In this age of globalization, almost all types of business are international trade. for most cases, customers and dealers don't know anyone. Here, the seller has a risk. To avoid this risk, international buyers want these letter of credit.

If you want to import any commodity from abroad, you must make a letter of credit through the bank. LC is the only legal way for international trade. Through the LC, merchants import and export goods from one country to another.

What needs to do LC?

(1) To make a letter of credit, a trader will first need a trade license and it must be updated.

(2) The latest audit report

(3) An IRC-Import Registration Certificate

(4) Membership certificate from the local trade chamber or related association

(5) Income tax declaration or income tax declaration for a new organization

(6) VAT registration certificate

The documents have to be collected before the application for LC.

The applicant has to collect the documents mentioned before the application forLC. There will also be some other documentation needed:

(1) LC application form also.

(2) Indent / Performance Invoice (PI) / Purchase Order / Purchase Agreement.

(3) Proper and properly executed charge documents

(4) Properly sealed and signed LC approval form (LCAF)

(5) Even Insurance notes

After collecting these papers, the documents will be submitted to the bank who is willing to do a letter of credit. Of course, there must be an account with the bank. The bank will check the papers. For this, the bank will take a few days. After all the work of LC will be informed from the bank.

LC deals with the bank

Initially, the bank will have to pay the full amount. Suppose LC Value is $ 20,000. At the bank, you have to deposit 1.6 million. However, gradually increasing the business with the bank, letter of credit should be opened with 10-20% margin. There should be some other documents with money. Such as:

3 or 4 copies of all paper (Trade license, Tin, Croce, IRC) Indent / Pi of your company. Bank Credit Report of the Company's Company Insurance Cover Note (It will be paid by showing the Indent in any insurance company)

Then the bank will give you a copy of LC. The originals will send to the supplier abroad.

How to deal with LC

For all business transactions, there are two parties, one buyer and one seller. Therefore, The transaction will be processed through LC

(1) The buyer will first contact the seller

(2) The bank will contact the bank that is willing to make LCs

(3) Send from the issued LC Bank to the Vendor Consulting Bank

(4) Vendor advisory banks will send the letter of credit documents to the vendor

(5) View the papers and tell the seller the date of the purchase. And as soon as the dealer will show all the documents dealing with the consulting bank.

(6) Send the banking bank papers to the bank in which the customer has made the letter of credit.

(7) After reviewing the papers, the letter of credit will send the clearance of the issued bank transaction to the counseling bank. And at the same time send a clearance to the buyer and Counseling banks will send a clearance to the seller.

After getting clearance, finally, the buyer-seller is ready for the transaction which supports to foreign exchange.

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Bank of America

SWIFT / BIC Code and Routing Number of Bank of America

SWIFT code, BIC code of national and international branches of Bank of America have been placed here. Such as - USA, UK, Netherlands, Canada, Australia, Germany, Italy, Ireland, France, Japan, Thailand, Korea, India, Singapore and all other national branches etc.

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Depreciation and Inflation

Depreciation

When a currency depreciates, this means that the currency has decreased in value when compared to another nations currency. Depreciation happens in countries with a floating exchange rate. A floating exchange rate means that the global investment market determines the value of a country's currency.

The exchange rate among various currencies changes every day as investors reevaluate new information. While a country's government and central bank can try to influence its exchange rate relative to other currencies, in the end it is the free market that determines the exchange rate. As of 2012, all major economies use a floating exchange rate. Depreciation occurs when a country's exchange rate goes down in the market. The country's money has less purchasing power in other countries because of the depreciation.

Devaluation

Devaluation of currency is an active economic strategy. It is sometimes used when countries are badly in debt. This occurs when a country lowers the official value of its currency in relation to foreign currencies. This is intended to raise the price of imported goods and increase the value of the country's exported goods. This can be a risky economic move because it can spark hyperinflation.

Devaluation happens in countries with a fixed exchange rate. In a fixed-rate economy, the government decides what its currency should be worth compared with that of other countries. The government pledges to buy and sell as much of its currency as needed to keep its exchange rate the same. The exchange rate can change only when the government decides to change it. If a government decides to make its currency less valuable, the change is called devaluation. Fixed exchange rates were popular before the Great Depression but have largely been abandoned for the more flexible floating rates. China was the last major economy to openly use a fixed exchange rate. It switched to a floating system in 2005.

Difference Between Depreciation and devaluation of currency .

Both currency depreciation and currency devaluation end up with a currency that is worth less than it previously was in comparison to the currencies of other countries. The difference is in how the currency comes to be worth less.

* Depreciation occurs only in countries that allow their exchange rates to float. That is, these countries allow supply and demand to determine the value of their currency relative to the currencies of other countries. Depreciation occurs when the forces of supply and demand cause the value of their currency to drop. 

By contrast, devaluation occurs only in countries that do not allow their exchange rates to float.  These countries governments control the official value of their currency. They typically use government money to buy or sell currency so as to keep the exchange rate where the government wants it to be. Devaluation occurs when a government decides that it needs to have its currency be worth less.  It then allows its currency to become weaker.

* In general, depreciation is considered to be a better thing because it happens naturally where devaluation is artificial. 

devaluation is taking the exchange rate from equilibrium to a disequilibrium situation; fix the exchange rate below its equilibrium value; create a situation where demand for the currency exceeds supply of the currency.

* However, depreciation implies a lower equilibrium exchange rate following an increase in supply of the currency or a decrease in the demand of the currency.

depreciation and appreciation is for floating exchange rate and devaluation and revaluation is only for fixed exchange rate  hope that helps.

Types of Inflation

There are two types of inflation.

1. Demand pull inflation.

2. Cost plus inflation.

Demand Pull Inflation

A situation where the demand for goods and services rises faster than the supply of goods and services. This excess demand increases the prices of the goods and services hence creating inflation.

Can be simply said as  Too much money chasing too few goods . 

Basic cause comes from the demand side. Some factors that cause these demand pull inflation are excessive foreign investment, expansionary fiscal policy e.g increase in government expenditure), expansionary monetary policy( eg. Increase in money supply),easy access to credit , deficit financing and others. Due the increase in aggregate demand which cannot be met by corresponding increase in aggregate supply because there is no more unemployed resources to be drawn into production.

Cost Push Inflation

Cost push inflation simply arises from increased cost of production. The increased cost of production can be due to aggressive trade unions seeking for higher wages/ allowances, etc , increases in the prices of local raw materials or imported raw materials or products or services. Due to increased cost of production, manufacturers have to increase their prices of their goods/products to compensate the increased costs in raw materials or labor hence creating inflation.

For example, in Malaysia, due to the oil crisis in 1973-1974 and 1979-1980, cost of production increased sharply and which increased the price level and cause cost push inflation.

Finally it is expressed that Demand-pull inflation is caused by excess demand.  When the people as a whole get more money they are able to pay more for goods and services (unless more goods and services are produced).  Economists talk about more money "chasing" the same amount of goods and services.  This causes shortages and prices rise.

Cost-push inflation is caused by disruptions in supply.  These disruptions cause increases in the price of production.  That leads to inflation.  For example, a rise in the price of oil causes practically all production to become more expensive.

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SWIFT Code or BIC Code - Meaning.

SWIFT & Its Use.

The SWIFT Code is a standard arrangement for Business Identifier Codes (BIC) and it's utilized to remarkably recognize banks and budgetary organizations all inclusive - it says who and where they are. These codes are utilized while exchanging cash between banks, specifically for universal wire exchanges or SEPA installments.

A SWIFT code is a global bank code that recognizes specific banks around the world. It's otherwise called a Bank Identifier Code (BIC). 'Bank of America' SWIFT codes to send cash to abroad banks.

A SWIFT code comprises of 8 or 11 characters.

The SWIFT code of 'Bank of America' is BOFAUS3D. You'll have to give this code to anybody sending cash to you from abroad. The code is comprised of letters and numbers as takes after:

SWIFT codes and BIC codes are a similar thing and the terms are exchangeable. Different terms utilized by banks abroad include:

CHIPS (Clearing House interbank Payment System) – US and Canada as it were

NCC (National Clearing Code)

BSC (Bank Sort Code)

IFSC (Indian Financial System Code).

In case you're sending cash to somebody abroad, you'll have to get the beneficiaries SWIFT keeping in mind the end goal to do the exchange.

If it's not too much trouble note: when entering a SWIFT in Net Bank don't enter spaces, hyphens or unique characters.

ISO 9362 characterizes a standard format of Business Identifier Codes (otherwise called SWIFT-BIC, BIC code, SWIFT ID or SWIFT code) endorsed by the International Organization for Standardization (ISO). It is an interesting distinguishing proof code for both budgetary and non-financial establishments.

The acronym SWIFT stands for the Society for Worldwide Inter-bank Financial Telecommunication. The ISO has assigned SWIFT as the BIC enlistment power. At the point when allotted to a non-financial organization, the code may likewise be known as a Business Entity Identifier or BEI. These codes are utilized while exchanging cash between banks, especially for worldwide wire exchanges, furthermore for the trading of different messages between banks. The codes can once in a while be found on record proclamations.

The covering issue between ISO 9362 and ISO 13616 is talked about in the article International Bank Account Number (additionally called IBAN). The SWIFT system does not require a particular format for the exchange so the recognizable proof of records and exchange sorts is left to assentions of the exchange accomplices. During the time spent the Single Euro Payments Area the European national banks have concurred on a typical format in view of IBAN and BIC including a XML-based transmission format for institutionalized exchanges; the TARGET2 is a joint gross clearing framework in the European Union that does not require the SWIFT system for transmission (see EBICS). The TARGET-catalog records all the BICs of the banks that are joined to the TARGET2-system being a subset of the SWIFT-registry of BICs.

SWIFT is the Society for Worldwide Inter-bank Financial Telecommunication, a member-owned cooperative through which the financial world conducts its business operations with speed, certainty and confidence. More than 10,000 banking organisations, securities institutions and corporate customers in 212 countries trust us every day to exchange millions of standardized financial
messages.

Swift also sells software and services to financial institutions, much of it for use on the Swift-net Network, and ISO 9362. Business Identifier Codes (BICs) are popularly known as "SWIFT codes. The majority of international inter-bank messages use the SWIFT network. As of September 2010, SWIFT linked more than 9,000 financial institutions in 209 countries and territories, who were exchanging an average of over 15 million messages per day (compared to an average of 2.4 million daily messages in 1995). SWIFT transports financial messages in a highly secure way [how?] but does not hold accounts for its members and does not perform any form of clearing or settlement.

SWIFT does not facilitate funds transfer; rather, it sends payment orders, which must be settled by correspondent accounts that the institutions have with each other. Each financial institution, to exchange banking transactions, must have a banking relationship by either being a bank or affiliating itself with one (or more) so as to enjoy those particular business features.

SWIFT for banks

Thousands of banks use SWIFT to increase their reach, achieve operational cost efficiencies and enhance their customer service in payments, trade, treasury and securities services. They also use SWIFT to comply with new regulation like SEPA, sanctions screening, BCBS intraday liquidity reporting, OTC derivatives, as well capture new opportunities from policy liberalization initiatives like RMB internationalization.
Banks also increasingly use SWIFT’s business intelligence to act faster and perform better. Finally, SWIFT provides thought leadership and facilitates industry discussion around key topics affecting the banking industry.
Here is an overview of SWIFT’s value proposition for banks:

Financial transaction services

 Provide financial services to your corporate customers
 Offer payments and cash management services to institutional clients
 Connect to an ACH or RTGS for payments clearing and settlement
 Offer trade and supply chain services including the Bank Payment Obligation
 Automate, confirm, match and report foreign exchange and derivatives trades
 Securities pre-trade / trade, post-trade, custody and asset servicing, and funds services

Regulation / liberalization

 Successfully migrate to SEPA
 Reliable, cost-effective compliance services for sanctions screening and sanctions testing
 BCBS compliant intra-day liquidity analytics and reporting
 Derivatives regulation / EMIR compliant trade confirmations, clearing and reporting
 Understand what RMB internationalization means for you

Business Intelligence

 Analyse your SWIFT messaging flows
 Identify new opportunities, benchmark against competitors using insight dashboards

Thought leadership

 SWIFT white papers on key industry topics in banking
 SWIFT hosts a number of community events spanning the global financial markets.

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Trade Based Money Laundering.

Trade Based Money Laundering. 

As indicated by the International Money Laundering Information Bureau (IMLIB), government evasion is the third biggest industry worldwide after oil and cash. Trade Based Money Laundering (TBML) is one of the most established types of IRS evasion. It is likewise a standout amongst the most modern strategies for cleaning messy cash, and TBML warnings are among the hardest to identify. IRS evasion and wrongdoing are supplement to each other. One can't get by without the other. Wrongdoing creates messy cash and government evasion washes that soil to make it look clean.

Individuals dependably need a more secure place to keep their lawful or illicit profit at a secured and lower charge purview. In that strategy they use different complex channels and systems to bring their dark or white cash at a place where it is hard to follow it out, individual security is ensured, no political unsteadiness, lower or no assessment and more advantages.

As of late a gigantic hole of reports from a Panamanian law office, Mossack Fonseca, has tossed new light on how the rich and intense conceal their riches. They demonstrate how the organization has helped customers launder cash, avoid endorses and dodge assess. The greater part of that illicit cash comes through different instrument of TBML. Despite the fact that there are honest to goodness methods for utilizing charge sky, a large portion of what has been going on is about concealing the genuine proprietors of cash and abstaining from paying expense on the cash.

As per late insights the illicit stream of cash from Bangladeshi nationals are developing quickly where the pattern is diminishing in other South Asian nations. Greatest parcel of fare profit of Bangladesh come shape RMG trade. Here with a specific end goal to execute RMG trade arrange Back to back Letter of Credit (BBLC) worth a great many dollars are being issued regular against colossal number of fare LC and contracts. Here TBML is less demanding than whatever other remote exchange operations. So in Bangladesh the extent of TBML is more extensive than most different nations on the planet.

We realize that inside the extent of "exchange fund" a Financial Institution (FI) gives administrations, for example -

• Bank ensures 

• Documentary accumulations

 

• Financing under open record exchanges 

• Forfeiting and hazard investment 

• Import/send out advances 

• Packing advances 

• Pre-shipment advances 

• Structured exchange financing 

• Trust receipts 

• Warehouse financing Import/trade receipt marking down 

• Letters of credit ("L/C") 

• Financing for exchanges under L/Cs et cetera.

The TBML paper distributed by the Financial Action Task Force (FATF) has a rundown of warning markers that can be utilized proactively by bank exchange back divisions to battle TBML. These warnings incorporate the accompanying:

* Significant discrepancies between the description of the commodity on a bill of lading and the invoice.

• Significant discrepancies between the value of the commodity or goods reported on the invoice and the fair market value. For example, gold jewelry being exported at US$500 an ounce when the market rate is approximately US$950 per ounce.

• The type of commodity being shipped is not in line with the exporter or importer’s regular business activities, e.g., a manufacturer of toys exporting IT equipment. Cross linking “know your customer ” data and regular business alerts is an absolute requirement for an effective AML compliance program.

• The size of shipment appears inconsistent with the scale of the exporter or importer’s regular business activities. For example, a small textile exporter shipping a consignment worth US$50 million when its normal turnover is $1.5million.

• The goods are shipped through one or more jurisdictions or unconnected subsidiaries for no apparent economic reason.

• The transaction involves the receipt of cash (or other payments) from third party entities that have no apparent connection with the transaction. The transaction involves the use of front or shell companies.

As an essential element of trade related activities an FI should establish and maintain adequate and appropriate risk based controls to address TBML in respect of each kind of customer, business relationship, product and transaction.  Accordingly, they should also develop written policies and procedures to assess and mitigate Money Laundering/Terrorist Financing (ML/TF) risks arising from their trade related customers and activities.

Therefore,  KYC (Know your customer) related to trade based activities is the most important requirement for the FIs that may include: 

(a) business nature, such as major products, jurisdictions and markets;

(b) delivery / transportation mode for goods or services; 

(c) major suppliers and buyers; 

(d) products and services to be utilised from the FI; 

(e) anticipated account activities; 

(f) anticipated major methods and terms of payment and settlement; 

(g) internal customer risk assessment ratings by the FI; 

(h) any previous suspicious transaction reports filed with relevant authorities, to the extent possible bearing in mind legal and regulatory constraints, including the need to avoid the risk of tipping off; and 

(i) other information from the relationship manager or other relevant staff.

At present the Hong Kong Association of Banks (HKAB) has issued its eagerly awaited Guidance Paper on Combating Trade based Money Laundering (Guidance Paper). They recommended some key standards in detail to the FIs identifying with Trade Controls that are as per the following:

• Adopting a hazard based way to deal with their appraisal of dangers in connection to exchange related exercises, and in addition the definition and execution of Trade Controls.

• Performing client level or (for non-clients) exchange level hazard evaluation by making reference to the hazard based approach and, in light of the appraisal comes about, lead proper Customer Due Diligence (CDD) and continuous observing.

• Setting out the strategy for surveying, checking and alleviating exchange related exercises, including particular sorts of exchanges with respect to hazard levels.

• Taking into record important warning markers which are suitable having respect to their own particular business scope, size of operations and specific situations.

• Setting out clear warning survey and heightening strategies connecting with more elevated amounts of power for higher hazard figures and indicating the suspicious exchange reporting components including the money laundering reporting officer (MLRO).

• Making utilization of govern based exemption reports or discovery situations to the degree sensibly practicable.

• Ensuring clear division of parts and obligations and responsibility for identifying with basic capacities.

• Requiring choices identifying with exchange exchanges, work process methods and warnings to be reported suitably for review trail purposes in regards to records keeping norms.

KYE (Know your employee) is additionally a fundamental precautionary measure alongside KYC (Know your customer). The Cobrapost, an Indian news site through some sting operations discovered a few cases that highlight the contribution of workers in deceitful exchanges and as a rule allied with clients. In spite of the fact that there was no confirmation to show they did it for direct monetary profits, it proved that to pull in clients and assemble organizations to meet their objectives they won't dither to turn to any strategies. It appears the weight to accomplish the objective was the thought process behind their activity. This accordingly gets sharp center the requirement for careful keeps an eye on workers' certifications and legitimate screening of contender to keep the enlisting of undesirables.

An organization actualizing and keeping up a thorough inside control framework and with a good and moral esteem framework would, as a rule, keep any mutilation of standards and directions. On the off chance that saving money organizations don't go down that street, it is unavoidable that they will be more inclined to infringement and resultant reputational hazard. A decent inside control framework with a solid and hearty moral culture will minimize any harm.

Absence of most profound sense of being, ethical quality and ravenousness appear to be the underlying drivers for these issues. Insatiability has assumed control happiness and supplanted moral qualities. Everybody needs to get rich, driving individuals and organizations to enjoy exercises conflicting with authoritative qualities. Organizations ought to attempt to build up a culture with a moral and profound tone that echoes always. The more it is created, less will be the frequency of extortion and infringement.

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Synthetic money support to e-commerce and e-banking

Synthetic money refers to Plastic cash is the other option to the money or the standard 'cash'. Plastic cash is the nonexclusive term for a wide range of bank cards, Mastercards, charge cards, smartcards, and so forth. They are the other option to the money or the standard 'cash'.Plastic cash is utilized to allude to the Mastercards or the check cards that we use to make buys in our ordinary life.

The different Plastic cards incorporate ATM cards, Platinum card, ATM cum Check card, Mastercards, Keen Card, Charge Cards, Co-marked cards, add on cards etc.

1. Debit cards - 

When a man uses a check card, the cash is straightforwardly charged from the individual's financial balance. Along these lines, a man can utilize the check card till he has adequate equalization in his ledger as there is no conceded installment. Debit cards can likewise be utilized as a part of A Teller Machines (ATMs) to pull back money.

2.Credit cards -

A charge card is a kind of plastic cash utilizing which a man can buy now and pay later. At the point when the individual swipes his charge card for making installment, the sum does not get charged to his financial balance. It is paid by the Mastercard organization and goes to the individual as a month to month articulation.

 

3. Smart Cards - 

A smart card comprises of an electronic chip used to store money. While making an installment, the precise sum is deducted from the brilliant card. This card does not require any approval like mark or ID.

4. Cash Cards - These cards can't be utilized to make installments or purchasing things. They are valuable for pulling back money from machines, known as ATMs.

5. Prepaid Cash Cards - These cards are like charge cards aside from that there are no month to month articulations. It can be utilized till there is credit as a part of the card yet does not require a financial balance.

6. Store Cards - A few stores have their own particular cards which can be utilized at that specific store or gathering of stores. They can be utilized like charge cards as a part of the specific stores however are went with high financing costs.

7. Loyalty Cards- An Unwaveringness cards are issued by retailers as a prize to continuous purchasers. It qualifies the cardholders for a specific rate of rebates each time they buy from that retailer.

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The bright future of e-commerce in Bangladesh

Since Bangladesh is a developing nation , the opportunity for the development of local and international trade and business, like all other Least Development Countries, is increasing. Although it faces some barriers like infrastructural, cultural, and outlook problem, recent few necessary steps taken by the government may convert the situation”. Thongs are started to keep roll in Bangladesh, many of the businesses are using e-commerce as their main tool for trading of business.

The telecom framework of any nation influence the Internet benefits by and large, cause it is energetically trusted on it. The telecom selection rate brought generously up in the late years, significance more individuals are near the edge of utilizing e-business or tune in e-trade occupations or activities. The quantity of web utility recipient is increasing in Bangladesh. In 2000, the quantity of web endorser was near 30000, which is later starting 2010) near 995,560. This addition in web utilization set off the utilization of different e-business destinations past communicated in this task.

Logical development of web populace and use of its plausibility in isolated divisions prompt Bangladesh to be bothered with data super express way, in this way finding out business and exchanges over web has been too simple especially for B2B area. In spite of the fact that double dealing is subsisted among different partners of distinctive nations around the globe in joining in electronic correspondence and the pattern, exchanges, size and volume of exchanges are changed. It is unmistakable that the created nations like USA and Europe are currently the business sector pioneer of e-trade.

Exponentially raising coherence of web populace and utilization of its diverse utilities framed a more extensive group, called e-group and enticed changing its capacity to a fresh out of the plastic new market coliseum from being worked as a medium of correspondence. The exceptional favorable circumstances of e-trade like, Opportunity to operations, simple worldwide achieve, lower expense of procuring, serving and holding clients, simple to fabricate an expanded undertaking, enhance client administration and de-intermediation entice the world business group to receive e-trade. Basing on a broad study examining e-business opportunities through an organized examination instrument the study will report Lower correspondence cost, Easy worldwide achieve, Increase client base, Increase deals, upgrade organization picture, Achieve future business potential are the significant advantages of e-trade reception in Bangladesh.

Regardless of being a poor nation, chose portions of the Bangladeshi business group has grasped innovation with sensible achievement. The Facsimile in the 1980‟s and cellular phones in the 1990‟s promoted cutting edge innovation in the mass business. PCs and the Internet are additionally developing as normal business instruments. These positive markers are supporting the possibilities of e-business in Bangladesh.

The present condition of the administrative environment in the monetary and mechanical divisions of Bangladesh. Vital changes so as to present e-business have additionally been recommended. Absence of mindfulness among the approach producers has been recognized as the real obstacle to presenting e-business. Traditional comprehension of installment components raises false cautions against the flight of capital if e-business is actualized.

Synergy between telecommunications and information technology has the vindicated ability of restraint and administering the actual-time transactions. Thus, liberalizing the telecom and IT divisions & county as well as re-sanctifying the country’s monetary and commercial process is the preconditions of successfully accomplishing commerce in Bangladesh.

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Definition / Methods or Techniques of Foreign Remittance.

Definition of foreign remittance.

The process of sending money from one county to another is called foreign remittance. Generally money is transferred to foreign by various ways like bill of exchange, bank draft, travellers cheque or letter of credit etc. All these techniques of sending money from one country to another is called foreign remittance.

" A sum of money sent from one place or person to another is called remittance". (The Oxford English Dictionary)

"The forwarding for credit of deposits through cheque, cash, money order, mutured coupons etc by customers through the mail. (C J Woelfel)

"Remittance means money by migrant workers in foreign countries to their former homes. (John Black)

Methods /Process/Techniques of Remittances .

To transfer currency from one country to another is called foreign remittance. Generally the  money earned by debtors created through import or toiling in foreign are transferred from one county to another. There are various methods to transfer money to foreign are given below with detail :

1. Bank draft :

In this system bank orders to its foreign branches or agents to give an equivalent amount of foreign currency to a particular individual. Here bank receives country's money for bank draft and Calculates it to foreign currency with commission & vat.

2. Foreign bill of exchange :

The most using medium of sending money to foreign is foreign bill of exchange.  Payee or creditor makes and sends it to debtor for approval. If debtor approves then it is considered  as legal document. Payee can en-cash such bill from particular bank of his country.

3. Mail transfer :

In this system debtor pay in or deposits a particular amount of money with commission & vat to bank for money transferred. Bank sends an order of payment the necessary particular money with receivers name & address through postage or mail to its agent or foreign branch. After sending the information of that money has already been sent by the sender & bank to payee in time then he can withdraw it.

4. Telegraphic transfer :

In this system money is transferred very fast by bank to the foreign. Sender pays in money with determined commission to bank. Bank sends an order very fast to its foreign branch or agent with telephone for giving a determined amount of money to a particular individual with name and address. After then that individual collects money from that branch or agent.

5. Travellers cheque :

This is also a medium of sending money by bank. Cumulating the amount of money with commission & fees bank issues one or more than one cheque in the name of traveller. Through this cheque bank gives an order to its foreign branch or agent for paying the amount mentioned into cheque to the traveller.

6. Cash letter of credit :

Paying specific amount of cash the importer orders to bank to issue a letter of credit in favour of exporter or creditor. Submitting that letter of credit to a particular bank, the exporter can collect the cash.

7. Personal cheque :

In his method debtor sends a cheque of his own account to creditor. Creditor can collects that money placing that cheque to any branch of orderer bank.

8. International money order :

In this method a money order contract among various countries is made and placing money with specific duty & vat to post office currency is sent to the foreign countries.

9. Guaranteed mail :

It's a modern edition or version to  send money through postage. In this system the sender places money to post office and that post office sends a order letter to the post office of creditors county. At last the payee  can collect that money before or after reached that guaranteed mail to his hand.

10. Electronic mail transfer :

In this system money is sent to foreign countries through bank and renowned financial institutions. Sender pays or places money to bank and bank provides him a secret pin code. Sender apprises that code to payee and bank informs and orders to its agent & foreign branches through e-mail about receiver with all information to pay that money. Giving or placing that secured number to that agent or determined bank the paternal can collect that money.

11. Cash paper money :

Currency may be sent to foreign With the help of cash paper money. Generally such opportunity is given at a special emergency condition. This system is effect able if good relation and cash payment is continued between the two countries.

12. Travellers letter of credit :

It is a letter of credit which a bank issues travellers for the convenience of the person who want to travel with in the country or abroad.

13.Circular note :

Bank gives an order to its foreign branch or agent to pay specific amount of money through circular note. Payee can collect money giving signature on the delivery or submission letter attached with the circular note.

At last it is said that ATM card, On-line banking, SWIFT etc. are used in modern banking system to send money to the foreign countries except the above discussed system or methods. And in future the banks will find out the most easy & fast system to send money or currencies from one county to another.

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Method of Determining Foreign Exchange Rate.

In which ratio the currencies between two countries are changed each other is called exchange rate. The exchange rate is fluctuated due to the difference of value standard of currency. Generally exchange rate is determined depending on the  demand & supply of currency. The determined methods of foreign  exchange rate are different according to the variation and differentiation of currencies. The methods of determining foreign exchange rate are divided into two categories are given below with detail :

1. Gold standard method.

2. Paper currency method.

1. Gold standard method :

The equal amount of golds are reserved or mixed gold in making currency against circulation or running the currencies of which countries are called gold standard area. The exchange rate in the countries of gold standard areas is determined by gold standard method or according to the ratio of consigned gold against the currencies between the two countries. In the ancient time the exchanged rate was determined by this method but at present this method isn't used to determine the exchange rate. The another name of this exchange rate determined by this method is called 'Mint per exchange ' also. It was a difficult method. Because every county itself determined gold standard according to its benefit and as a result the controlled of exchange faced the high difficulties.

2. Paper currency method :

There is running and continuing paper currency at about every county in the present world. The exchange rate is determined by the paper currency method in the paper currencies issuing countries. There are two theories of determining exchange rate according to the paper currency method. Such as-

i) Purchasing power parity theory.

ii) Balance of demand & supply theory.

I) Purchasing power parity theory :

By definition the PPP states that utilizing a unit of a coin, let us say one euro, which is the obtaining power that can buy  the same  merchandise around the world. The hypothesis is in view of the 'law of one value', which contends that ought to an euro cost of a decent be duplicated by  the conversion standard (€/US$) then  it will bring about an equivalent cost of  the positive qualities in US dollars. As it were, if  we expect  that  the trade  rate between the € and US $ states at 1/1.2, then  products that cost € 10  in the EU ought to cost US$ 12 in the United States. Something else, arbitrage 11 benefits will happen. Nonetheless, it is at long last  the business sector that through supply and interest will drive in like manner the euro and US dollar costs to  the harmony  point. Along these lines, the law  of one cost will be re-established, and additionally the  buy power equality between the euro and US dollar. Swelling differentials between nations will likewise be dispensed with regarding their impact on the costs of the products in light of the fact that the PPP will  acclimate to equivalent the  proportion of their cost levels 12. All the more particularly, as expressed in  their book (Lumby S. & Jones C. 1999) "the money of the nation with  the higher rate of swelling  will deteriorate against the other nation's coin by roughly the expansion respectful". All in all, it can  be contended that the hypothesis, despite the fact that it depicts in a sufficient manner the determination of the trade rates,  is not of good esteem, for the most part as a result of the accompanying two impediments. Firstly, not  all products are exchanged  universally (for instance, structures) and also, the transportation expense ought to speak to a little measure of the good worth.

ii) Balance of demand & supply theory :

This theory is modern & the most acceptable. In this theory exchange rate is determined at the balance point of demand & supply of currencies. The supply of foreign currency is increased through export of commodities. Because of increasing the supply of foreign currencies the demand of it is lessened and its value is drawn back more than indigenous currencies. As a result with the help of same amount of money more foreign currencies are gained than previous time and vice Versailles. On which point the demand & supply of foreign currencies of two countries are equal is called balanced point and on this point currency exchange rate is determined. It is also called balanced theory. In this theory, the exports imports of tangible & intangible goods are considered and the surplus of transaction is considered as balanced condition. But if the balanced condition of transaction is not controllable then the difficulties are seen in the determination of foreign exchange rate.

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Balance of Trade and Balance of payment.

Difference between Balance of Trade (BOT) and Balance of  Payment (BOP)

Essential Difference between Balance of Trade (BOT) and Balance of  Payment (BOP)  are given below with subtle element.

1. Definition :

Balance of trade may be characterized as distinction in the middle of fare and import of products and administrations.

Balance of payment is stream of money between residential nation and all other outside nations. It incorporates not just import and fare of merchandise and administrations additionally incorporates monetary capital exchange.

2. Formula :

BOT = Net Earning on  Export - Net payment for imports.

BOP = BOT + (Net Earning  on foreign investment - payment made to foreign investors) + Cash  Transfer + Capital Account +or - Balancing Item or  BOP = Current Account + Capital Account  + or - Balancing item ( Errors and omissions).

3. Favourable  or  Unfavourable :

In the event that export is more than  import, around then, BOT will be ideal. On the off chance that import is more than fare, around then, BOT will be unfavourable.

Balance of Payment will be  ideal, on the off chance that you have surplus in current record for paying your all  past credits in your capital record. Balance of payment will be unfavourable, on the off chance that you have current record shortage and you took more credit from outsiders. After this, you have to  pay high enthusiasm on additional advance and this will make your BOP  unfavourable.

4. Arrangement of unfavourable Problem : 

To Buy products and services  from domestic country. 

To quit taking of loan  from foreign countries.

5. Elements /factors : 

Taking after are fundamental factors  which influence BOT a) expense or costs of production b) availability of raw-materials c) Exchange rate d) Prices of commodities or goods produced at home.

Followings are fundamental factors  which influence BOP a) Conditions of foreign lenders. b) Economic arrangement or policy of Govt.  c) all the elements of BOT.

6. Significance of Debit and  Credit :

In the event that you see RBI' Overall  balance of payment report, it shows debit and credit of current account. Credit means total expenses of distinctive merchandise and administrations and charge means aggregate import of products and administrations in current account.

Credit intends to receipt and winning both present and capital record and charge means absolute surge of money both current and capital account and distinction between  debit and credit will be net balance of payment.

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Foreign Exchange Rate.

Definition of foreign exchange rate .

In which rate a currency of a county is turned & converted into another is called foreign exchange rate.

"Foreign exchange rate is the price relationship between the currencies of two countries."(Dictionary of Banking and Finance)

"The price of particular currency in terms of other currencies will changes, is known as foreign exchange rate." (D G Luckett)

The foreign exchange rate is the rate at which one country's money can be turned into another." (John Black)

"The rate of exchange between two countries is the amount of one currency that will be exchanged for one unit of another currency." (K C Shekhar)

At last according to the above definition it is said that,

* Exchange rate is the exchange ratio of the currency of two countries.

* A unit currency of a county will be turned into How many currencies of other countries is determined by the exchange rate.

* Received-payment of currency  depends on exchange rate.

* Exchange rate is changed with the changing of economic condition of a country.

Causes of fluctuation in the rate of exchange.

The ratio of turning the currency value between two countries is called the rate of exchange. The exchange rate of two countries is fluctuated due to the difference of demand & supply of more than one country's currencies. There are  many causes of fluctuating the exchange rate which are given below with details.

1. Condition of foreign trade :

If export is increased then foreign trade becomes favourable, more foreign currencies come in country, exchange rate is climbed up and vice versa.

2. Flow of capital :

If capital comes in county then more foreign currencies are entered & vice versa that means with the increasing -decreasing of flow of capital the rate of exchange is fluctuated.

3. Stock exchange :

More translations & the attendance or foreign companies in share market create the enhancement of stock exchange and less of that create oppose of that, means if foreign & countries purchasers buy more share then more foreign currencies enter into market, bull position of share market is created, exchange rate is augmented and vice versa.

4. Currency condition :

If the inflation is run up then the currency value is lessen and if  deflation is available then currency value & exchange rate is incremented. Thus, more inflation and deflation waste the balance of fluctuation of exchange rate.

5. Bank rate :

If the bank rate of a country is raised then more deposits to bank is accumulated, foreign trade becomes favorable, more foreign currencies come in county, the rate of exchange is enhanced.

6. Government currency policy :

The countries currency value is fluctuated through currency policy. If the currency policy is favorable of country then increasing the country's currency value, the exchange rate is climbed up and opposite reaction is created in opposite situations of that.

7. Foreign investment :

Foreign investment depends on investment policy & environment of a country. So, if the foreign  investment is picked up then foreign currencies come into, exchange rate is elevated and vice versa.

8. Political stability :

If the political condition of a country is stable then in a country the foreign investment is lift up, more foreign currencies come into, exchange rate is increased and in opposition the opposite reaction is exercised.

9. Price level :

When the price level in market is declined then the currency value is run up, exchange rate is lift up and vice versa.

10. Industrialization :

The value of currency is also climbed up due to industrialization and as a result being the favourable industrial environment of country, the supply of foreign currencies and exchange rate is incremented in a country.

11. International trade policy :

If the International trade policy come in a favorable position of country the foreign currencies are entered into. As a result the rate of exchange is elevated.

12. Interest rate :

In the increment of interest rate, huge foreign capital is invested due to more profit, exchange rate is  also enhanced and vice Versa.

13. Natural condition :

At the stability of natural condition the industry, business & commerce of a country is developed, entrance of foreign currencies is occurred and as a result exchange rate is drawn up also.

14. Sudden incidence :

Any sudden incidence is occurred or happened in country or at international stage, then exchange rate is climbed up. If such incidence isn't happened then economic development & stability will be run up, income will be enhanced and exchange rate will be lifted up.

15. International event :

If any International event goes on favorable position of a country then exchange rate is affixed and vice versa.

At last it is said that, the exchange rate can be increased & and; decreased in various reasons. But speculative businesses of currency, conditions of commodities market, international politics, various economic causes etc except the above described facts can impact & fluctuate to the exchange rate or foreign exchange rate.

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Definition & Importance of Foreign Exchange

Definition of Foreign Exchange.

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Foreign exchange means converting  the money or coin of a country to the money or coin of another country. The coin of a country is invalid to another country. But in foreign trade the payment must be with foreign currency. So, in which mechanism, system & process the currency of a country is needed to be converted in foreign currency is called foreign exchange.

"The mechanism, through which payments ate effected between two countries having different currency systems is turned as foreign exchange." (M N Mishra)

"Foreign exchange is bought and sold in foreign exchange markets." (Oxford Dictionary of Finance and Banking)

"Foreign Exchange is the mechanism by which commercial, investment and other transactions between countries are settled." (C J Woelfel)

At last it is said that, foreign exchange means-

* converting coin of a country to the coin of other countries.

* a recognized system to settle foreign payment.

* such exchange is performed through various transferable documents.

* Bank and other approved financial institutions perform the foreign exchange activities. 

Importance / Objectives /Causes of foreign Exchange.

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There are many causes to create debt-owe of a county with another countries. such debt- owe are paid with foreign currency. In this way one county uses foreign currency to pay the owe of another country. The process of converting the currency of a country to the currency of other countries is called foreign exchange. The importance of foreign exchange in the development of a country are given below with detail.

1. Completion of foreign trade :

Foreign exchange is very important and obligatory to settle the the debt-owe created from foreign trade. The import - export trading is easily performed with foreign exchange.

2. Foreign investment :

Foreign exchange is performed with foreign currency. So, the importance of foreign exchange is compulsory to increase the foreign trade.

3. Foreign remittance :

The persons working in abroad sends their earnings to their native land with foreign currency which raises the foreign reserve in country.

4. Foreign aid :

Many countries also financially aids to another county. Such aid given by various foreign organizations & government is paid with foreign currencies.

5. Machinery purchase :

The machineries of large & small scale of industries are to be imported from abroad. Such machineries are to be purchased with the help of foreign currencies. 

6. Foreign tour :

To visit into abroad the foreign currency of that country where you will make a tour, is very needed. such tour is easy and extended through foreign currency.

7. Credit payment :

The credit obtained from foreign countries are to be compulsorily paid with interest through foreign currency which is the result of foreign exchange.

8. Salary of foreigners :

There are many specialized foreigners & foreigner officers doing their jobs in a county. The salaries, bills, arrears & opportunities are to be paid with foreign currencies.

9. Payment of foreign tuition fees :

Foreign tuition fees of those person who are studding in abroad are to be paid with foreign currency.

10. Import improved technology :

To import the improved & modern technology from abroad the foreign currency is to be needed.

At last it is said that, a country is to pay the due money to other countries for various reasons. With the help of foreign currency such debts- owes is to be settled.

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