Foreign Trade / International Trade

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%20methods.pdf

Exchange rate policy:

The Reserve Bank’s exchange rate policy focusses on ensuring orderly conditions in the foreign exchange market.
For the purpose, it closely monitors the developments in the financial markets at home and abroad. When necessary,
it intervenes in the market by buying or selling foreign currencies. The market operations are undertaken either
directly or through public sector banks.
In addition to the traditional instruments like forward and swap contracts, the Reserve Bank has facilitated increased
availability of derivative instruments in the foreign exchange market. It has allowed trading in Rupee-foreign currency
swaps, foreign currency-Rupee options, cross-currency options, interest rate swaps and currency swaps, forward rate
agreements and currency futures.

The traditional flow in a trade finance “workflow” is as follows:

1. Customers submit the application at a Bank branch; with the attached physical
documents.  The documents vary depending on type of product. Eg: Direct
Import might need bill of lading, invoice, request letter, etc.
2. The branch personnel manually do a preliminary check and if anything is
missing/not clear, ask the customer to furnish the same.  Once all in place, the
branch does a scan of the documents into PDF/image files; and sends to the TF
operations team.
3. At the operations, a “maker” will manually go through the documents and enters
the relevant data into the system. If something is missing s/he returns the
application to the branch.
4. A “checker” will validate there are no errors.  Again, if something is missing s/he
returns the application to the branch.
5. Scrutiny checks happen to ensure the application falls within the allowed rules
like name validation across documents, etc.; else returns/rejects the application.
6. If all goes well, then it is processed and the deal goes through

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 Import documentation /reporting/ follow-up:
Current procedure
2.1 Procedure
Importers have to follow various procedure/formalities before engaging in EXIM activities. They are
required to register with the DGFT to obtain an Importer Exporter Code Number (IEC) issued against
their Permanent Account Number (PAN). Importer is required to enter in an agreement with overseas
exporter, placing an order for import of goods, opening letter of credit etc. Once goods enter the
country, they have to follow the Custom formalities for clearance of goods to close the transactions as
explained below.
2.1.1 Customs Formalities and Clearing of Goods: Upon arrival of shipment and after receiving the
documents of title of the goods, the importer has to take delivery of the goods, to bring them to his place
of business. Unless the following mentioned formalities are complied with, the goods lie in the custody
of the Custom House.
(a) Obtain endorsement for delivery or delivery order: When the ship carrying the goods arrives at
the port, the importer, first of all, has to obtain the endorsement on the back of the bill of lading by the
shipping company. Sometimes the shipping company, instead of endorsing the bill in his favour, issues
a delivery order to him. This endorsement of delivery order will entitle the importer to take delivery of the
goods.
The shipping company makes this endorsement or issues the delivery order only after the payment of
freight. If the exporter has not paid the freight, i.e., when the bill of lading is marked freight forward, the
importer has to pay the freight in order to get green signal for the delivery of goods.
(b) Pay Dock dues and obtain Port Trust Dues Receipts:
The importer has to submit two copies of a form known as ‘Application to import’ duly filled in to the
‘Lading and Shipping Dues Office’. This office levies a charge on all imported goods for services
rendered by the Dock authorities in connection with lading of goods. After paying the necessary
charges, the importer receives back one copy of the application to import as a receipt ‘Port Trust Dues
Receipt’.
(c) Bill of Entry:
The importer will then fill in a form called Bill of Entry. This is a form prescribed by the customs and is
filed electronically. The bill of entry contains particulars regarding the name and address of the importer,
the name of the ship, number of packages, marks, quantity, value, description of goods, the name of the
country wherefrom goods have been imported and custom duty payable.
2.1.2 Making the Payment: The mode and time of making payment is determined according to the
terms and conditions as agreed earlier between the importer and the exporter. In case of a D/P bill, the
documents of title are released to the importer only on the payment of the bill in full. If the bill is a D/A
bill, the documents of title of the goods are released to the importer on his acceptance of the bill. The bill
is retained by the banker till the date of maturity. Usually, 90 to 180 days are allowed to the importer for
making the payment of such bills.
2.1.3 Closing the Transactions: The last step in the import trade procedure is closing the transaction.
If the goods are to the satisfaction of the importer, the transaction is closed. But if he is not satisfied with
the quality of goods or if there is any shortage, he will write to the exporter and settle the matter. In case
the goods have been damaged in transit, he will claim compensation from the insurance company. The
insurance company will pay him the compensation under advice to the exporter.
2.2 Existing Reporting/Follow up system:
Under FEMA 1999, RBI guides the payment mechanism for import through authorized dealers. Rules
and regulations to be followed by the AD Category – I banks from the foreign exchange angle while
undertaking import payment transactions on behalf of their clients are set out below.
i. Time limit for imports: In terms of the extant regulations, remittances against imports should be
effected not later than six months from the date of shipment, except in cases where amounts
are withheld towards guarantee of performance, etc. AD Category – I banks may permit
settlement of import dues delayed due to disputes, financial difficulties, etc. However, interest if
any, on such delayed payments, usance bills or overdue interest is payable only for a period of
up to three years from the date of shipment and may be permitted.
ii. Advance remittance for import of goods: AD Category - I bank may allow advance remittance
for import of goods without any ceiling subject to certain conditions.
iii. Follow-up for import evidence: In case an importer does not furnish any documentary
evidence (BoE) of import within 3 months from the date of remittance involving foreign
exchange exceeding USD 100,000, the AD Category – I bank should rigorously follow-up for
the next 3 months, including issuing registered letters to the importer. AD Category – I bank
need not follow up submission of evidence of import involving amount of USD 100,000 or less
provided they are satisfied about the genuineness of the transaction and the bonafides of the
remitter. A suitable policy may be framed by the bank's Board of Directors to deal with such
cases.
iv. Existing monitoring system: AD Category - I banks submit a statement on half-yearly basis as
at the end of June & December of every year, in form BEF furnishing details of import
transactions, exceeding USD 100,000 in respect of which importers have defaulted in
submission of appropriate document evidencing import within 6 months from the date of
remittance using the online eXtensible Business Reporting Language (XBRL) system on a
 Bank-wide basis. The Statement should be submitted to RBI within 15 days from the close of
the half-year to which the statement relates.

7 Most Influential Factors Affecting Foreign Trade

 1) Impact of Inflation:
 2) Impact of National Income:
 3) Impact of Government Policies:
 4) Subsidies for Exporters:
 5) Restrictions on Imports:
 6) Lack of Restrictions on Piracy:
 7) Impact of Exchange Rates:

Forex trade:
conversion of one currency into another
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