Report on Prime Bank

Topics: Foreign exchange market, Letter of credit, International trade Pages: 16 (4187 words) Published: April 24, 2010


5.1 Meaning of Foreign Exchange

Foreign Exchange means exchange foreign currency between two countries. If we consider ‘Foreign Exchange’ as a subject, then it means all kind of transactions related to foreign currency. In other wards foreign exchange deals with foreign financial transactions.

H.E. Evitt defined “Foreign Exchange” as the means and methods by which rights to wealth expressed in terms of the currency of one country are converted into rights to wealth in terms of the currency of another country

5.2-Activities of foreign exchange:
There are three kinds of foreign exchange transactions:
5.3 Local Regulations for foreign exchange.
Foreign exchange transactions are being controlled by the following rules & regulations: ➢ Foreign Exchange regulation act 1947.
➢ Bangladesh Bank issues foreign exchange circular from time to time to control the export, import & remittance business. ➢ Ministries of commerce issues export & import policy giving basic formalities for import & export business. ➢ Sometime CCI&E issues public notice for any kind of change in foreign exchange transaction. ➢ Bangladesh bank published two volumes in 1996. This is compilation of the instructions to be followed by the authorized dealers in transitions related to foreign exchange.

5.4 Parties involved in Documentary Credit:

The parties are:
➢ The Issuing Bank,
➢ The Confirming Bank, if any, and
➢ The Beneficiary.
➢ The Applicant,
➢ The Advising Bank,
➢ The Nominated Paying/ Accepting Bank, and
➢ The Transferring Bank, if any.

i. Importer – Buyer Who applies for opening the L/C.
ii. Issuing Bank – It is the bank which opens/issues a L/C on behalf of the importer.

iii. Confirming Bank – It is the bank, which adds its confirmation to the credit and it is done at the request of issuing bank. Confirming bank may or may not be advising bank. iv. Advising / Notifying Bank – is the bank through which the L/C is advised to the exporters. This bank is actually situated in exporters country. It may also assume the role of confirming and / or negotiating bank depending upon the condition of the credit. v. Negotiating Bank – is the bank, which negotiates the bill and pays the amount of the beneficiary. The advising bank and the negotiating bank may or may not be the same. Sometimes it can also be confirming bank. vi. Paying / Accepting Bank – is the bank on which the bill will be drawn (as per condition of the credit). Usually it is the issuing bank. vii. Reimbursing bank – is the bank, which would reimburse the negotiating bank after getting payment – instructions from issuing bank.

Under the import policy of Bangladesh the Importer has get the valid Import Registration Certificate (IRC) from the Chief Control of Import & Export (CCI&E). 5.5.1- Letter of credit:
Letter of Credit means any arrangement whereby a Bank (the issuing Bank) is committed (on behalf of the buyer/applicant) to pay certain amount at the seller’s disposal under some agreed conditions. 5.5.2 - Types of documentary credit:

Documentary credit may be of three types.
• Revocable credit.
• Irrevocable credit.
• Add confirmed credit.

Revocable credit:
This type of credit can be cancelled or amended at any time by the issuing Bank without prior notice to the seller. It is not now in use. Irrevocable credit:
This type of credit can’t be cancelled or amended by the issuing Bank without the agreement of parties concerned thereto. All the credits issued in our country are of irrevocable nature. Add confirmed credit:

When a third Bank provides guarantee to the beneficiary to...
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