5. Foreign Exchange Foreign Exchange, like foreign trade, is a part of economic science.

It deals with methods by which wealth in one countrys are currency is converted into those of another currency. The function of a Bank in foreign exchange is very important. Bank helps to import, export and maintain exchange rate. A person opens a Letter Of Credit (L/C) with the help of bank to export or to import anything from other person. Thereby Banks are helping to balance the economy of the world. Money is a medium of exchange for all transaction that takes place inside the country as well as outside the country. Foreign trade financing is an integral part of banking business. With the globalization of economics international trade has become quite competitive. Timely payment for exports; quicker delivery of goods is therefore a pre-requisite for the success of international trade operation. Growing complexity of international trade underline the need of evolving a system that balances between the expectation of the seller and the buyer. According to foreign exchange regulation Act, Foreign Exchange means foreign currency and it includes any instrument drawn, accepted, made or issued under clause (13), Article 16 of the Bangladesh Bank Order, 1972, all deposits, credits, balances payable in any foreign currency. Bangladesh Bank does not deal directly with the members of public. The transactions are done by authorized dealers in accordance with the guidelines given by the Bangladesh Bank. Bangladesh Bank authorizes few branches of commercial banks to deal with the foreign exchange. These branches are known as Authorized Dealer. They act as an agent of the central bank and work under the exchange control regulation. Bangladesh Bank issues Authorized Dealer License by observing the banks performance and also by observing the customers associated with the bank for conducting foreign dealings. Bangladesh Commerce Bank Limited, Principal Branch works as an Authorized Dealer for the financing of foreign trade and dealing with foreign currency. This branchs foreign exchange department is mainly divided into three wings in accordance with two major activities, which are as under: Foreign Exchange Dept.

Import Section

Export Section

Foreign Remittance

Under other foreign services Bangladesh Commerce Bank Limited, Principal Branch provide the following services Wage Earner Development Bonds (WEDB) Foreign Currency Account There are three types of Foreign Currency Account. These are as follows Private Foreign Currency Account Non-residential Foreign Currency Deposit Account Residential Foreign Currency Deposit Account

5.1 Import Section: Import of merchandise involves two things: bringing of goods physically into the country and remittance of foreign exchange towards the cost of merchandise and services. In case of import, the importers are asked by their exporters to open a Letter of Credit. So that their payment against goods is ensured. Documentary Credit has emerged as a vital system of trade payment. It is a key player of foreign trade. 5.2 Letter of Credit (L/C): Letter of Credit is a payment guarantee to the seller by the buyers bank. It is a Credit Contract whereby the buyers bank on behalf of the buyer is committed to pay an agreed amount of money to the seller under some agreed conditions. If the conditions of the credit do not require for presentation of specified documents, it is called Clean Credit. On the other hand, if the presentation of specified documents is obligatory, the credit is called a Documentary Credit. Documentary Credit is an assurance of payment by the bank. It is an arrangement under which the bank at the request of the buyer or on its own undertakes to make the payment to the seller provided specified documents are submitted. In foreign trade, seller uses the Documentary Credit widely because payment acceptance or negotiation of the credit made by the bank upon presentation of specified documents (e.g. Bill of Lading, Invoice, Inspection Certificate). Buyer and seller enter into contracts for buying and selling of goods/services and the buyer instructs his bank to issue Letter of Credit in favor of the seller. Here the bank assumes fiduciary function between the buyer and seller. 5.3 Types of Letter of Credit: The Letter of Credit can be of two types. This are1) Revocable 2) Irrevocable. It needs to be clearly indicated whether the L/C is revocable or irrevocable. As per Uniform Customs and Practice for Documentary Credit (UCPDC) ICC Publication No 500, 1993, in the absence of any indication, it will be deemed as an Irrevocable Letter of Credit. 5.3.1 Revocable Letter of Credit According to Foreign Exchange Regulation Act, a Revocable Letter Credit is one which can be amended or cancelled by the issuing bank at any moment and without prior notice to the beneficiary, but the issuing bank is bound to reimburse the negotiating bank or any payment made prior to receipt of notice of cancellation, against shipping documents which are apparently in accordance with the terms of L/C. So this is clear that Revocable L/C can be amended any time without prior notice to the beneficiary. So, Revocable Letter of Credit is very risky. 5.3.2 Irrevocable Letter of Credit As per Foreign Exchange Act, an Irrevocable unconfirmed L/C can not be cancelled or amended without the consent of all the parties, particularly that of the beneficiary. It is a definite and

absolute undertaking of the issuing bank to make payment for goods supplied on presentation of stipulated shipping documents, if all the terms and conditions of the credit are complied with. If both parties agree to cancel the L/C only then the L/C will be cancel. 5.3.3 Types of Letter of Credit According to the time of Payment On the basis of time of payment, Letter of Credit can be of three types. These are as follows At Sight Letter of Credit:

In case of Sight L/C, the bank makes payment against presentation Sight Draft and documents drawn strictly as per terms under the Letter of Credit. Bank only deals with the documents not with the goods. If there is any problem in the documents then bank will not make any payment. Here Issuing Bank relies fund immediately on presentation of stipulated documents. Usance Letter of Credit:

Under Usance Letter of Credit payment is made at a time but after a fixed period of time. There is a term that after a fixed time period payment is made; that is 60 or 90 or 120 days the full payment is made. That means after using the goods or material the payment is making.

Deferred Letter of Credit:

Deferred payments mean delayed payment against Letter of Credit. The amount availed of, is not put at the sellers disposal immediately on presentation of documents, but only after a specified period. The credit wording always specifies duration of the period and time at which the payment will be effected against presentation of documents drawn under the Letter of Credit. It is also one kind of usance. But in is payment is made on an installment basis. Suppose, in one (1) year the payment will be made by six (6) installments. 5.4 Parties to Letter of Credit The bank at the request of an importer in favor of an exporter from whom he has contracted to purchases some commodities or services issues a Letter of Credit. Generally the Letter of Credit is transmitted to the beneficiary through a bank in the beneficiarys country. Therefore, parties of Letter of Credit are mainly: 5.4.1 Obligatory Parties are Importer/Buyer/Applicant. Opening Bank/ Issuing Bank. Advising Bank/Notifying Bank. Exporter/Seller/Beneficiary.

Besides, there are one or more than one banks who are involved in various capacities and various stages to play an important role in the total operations of credit which are as follows: 5.4.2 Optional Parties are Negotiating Bank. Confirming Bank. Transferring Bank. Reimbursing/Paying Bank. Corresponding Bank. 5.5 Issuing Bank The issuing bank or the opening bank is one that issues the credit on behalf of the applicant/importer. The payment may be at sight or at maturity date if the credit provides for deferred payment. Especially the issuing bank should satisfy itself on credit worthiness of the applicant. The credit application must be accordance with the regulation. 5.6 Advising Bank The advising bank is the bank through which the Letter of Credit is advised to the beneficiary (Exporter). The advising bank advises the credit to the beneficiary thereby authenticating the genuineness of the credit. The advising bank is normally situated in the country/place of the beneficiary. Exporter/Seller/Beneficiary: Beneficiary of the Letter of Credit is the party in whose favor the Letter of Credit is issued. Usually they are the seller or exporter. 5.7 Optional Parties The optional parties are the following5.7.1 Negotiating Bank: A Negotiating Bank is the bank nominated or authorized by the issuing bank to negotiate the documents and to pay the amount to the beneficiary, to incur a deferred payment liability, to accept draft. If the negotiation of the documents is not restricted to a particular bank in the Letter of Credit, normally the negotiating bank is the banker of the beneficiary. 5.7.2 Confirming Bank: The bank, which under the instruction in the Letter of Credit, adds guarantee to the credit, thereby undertaking the responsibility of payment/negotiation/ acceptance under the credit in addition to that of issuing bank. A confirming bank does so if requested by the issuing bank having arrangement with them.

5.7.3 Transferring Bank: Original beneficiary may transfer the Letter of Credit to second beneficiary as per clause of the L/C. transfer may be made once only. The bank of the original beneficiary authenticates the transfer and the bank is known as transferring bank. Normally transferring bank authenticates the transfer and keeps record of transfer without any engagement on their part. 5.7.4 Reimbursing Bank: A Reimbursing Bank nominated or authorized by the Issuing Bank to make payments against stipulated documents, complying with the credit terms. Normally Issuing Bank maintains an account with the Reimbursing Bank to make the payment. 5.8 Import Procedure/Mechanism: An Importer is required to fulfill some conditions/criteria to be eligible as an importer as per provisions of import policy order and guide lines for Foreign Exchange Transaction. 5.8.1 Requirements for opening a L/C Import Registration Certificate ( Original-Valid) Tin Certificate Vat Certificate Valid membership certificate from the registered Local Chamber of Commerce and Industry or any Trade Association. Trade License (Valid) A declaration, in triplicate that the importer has paid income Tax or submitted income Tax return for the preceding year. Indent for goods issued by indentor along with copy of attested IRC and Bangladesh Bank Permission. Pro-forma invoice for goods issued for foreign supplier mentioning that no Commission Agent in Bangladesh. Credit Report (Satisfactory) from competent authority of suppliers Bank or Internationally reputed Agency. A current account with BCBL, Principal Branch. Letter of Credit Authorization (LCA) from duly attested. L/C application duly signed by the importer. One set of IMP form. Insurance Cover note with money receipt.

Others. To import a person should be competent to be an importer. According to Import and Export Control Act, 1950, the office of Chief Controller of Import and Export provides the registration (IRC) to the importer. After obtaining this, the person has to secure a Letter of Credit authorization (LCA) from Bangladesh Bank and then he becomes a qualified importer. He is the person who requests or instructs the Issuing Bank to open a Letter of Credit. He is also called applicant of the credit. 5.9 Letter of Credit Authorization Form (LCAF): The Letter of Credit Authorization Form is the form prescribed for the authorization of opening letter of credit or payment against import and used in lieu of import license. The LCA forms available with the authorized dealers are issued in a set of five copies each. First copy is exchange control copy, which is used for opening of L/C and effecting remittance. Second copy is the custom purpose copy, which is used for clearance of imported goods from custom authority.

Triplicate and Quadruplicate copy of LCAF are sent to concerned area of CCI&E office by authorized dealer/Registration Unit of Bangladesh Bank. Registration Unit keeps quadruplicate copy as office copy.

When a client approaches for issuance of letter of credit, Import section of Bangladesh Commerce Bank Checks the following: Whether the item for import of which the documentary letter of credit need to be opened is permissible i.e. not include in the restrictive list as per Import policy Order in force. Whether there are any legal/technical defects/restrictions in opening the letter of credit under the various sources as intended by the customer. Whether the bank is holding satisfactory credit report on the beneficiary to satisfy the guidelines for foreign exchange transactions. 5.10 Importer Application for L/C Limit: The importer must have sufficient credit line for opening an L/C. In case the client does not have approved credit line for opening an L/C the manager of the branch takes necessary arrangement to submit a proposal to the Credit Committee/Executive Committee of the Board an keeps pending of opening the L/C till its approval. On receipt of the approval the Manager issues a sanction letter to the client providing copies of the same to Credit Division.

To have an import credit line, an importer submits an application to the Foreign Exchange Department of Bangladesh Commerce Bank Limited, Principal Branch furnishing the following: Full particulars of bank account. Nature of the business. Required amount of limit. Payment terms and conditions. Goods to be imported. Offered security. Repayment schedule. A credit officer scrutinizes this application and prepares the proposal accordingly and forwards it to the Head Office Credit Committee. The Committee, if satisfied sanctions the credit line and returns back to the branch. Thus the importer is entitled to the credit. 5.11 Letter of Credit Application: L/C Application is a sort of arrangement between client and bank. Bangladesh Commerce Bank Limited provides a printed form for opening a L/C to the importer. The importer gives the following details: Full name and address of the Applicant.

Full name and address of the Beneficiary. Draft amount (both in figure and word). The form of credit whether Revocable or Irrevocable. Whether the credit is available by payment, acceptance or negotiation. On which party the draft are to be drawn and the tenure of such draft. A brief description of goods, including details of quantity and unit price. Whether the freight is to be prepaid or not. The country of origin. The port of shipment and destination. Whether the transfer of good from one vessel to another, or from one mode of transport to another, reroutes, is prohibited or allowed. The last date of shipment. Partial shipment is allowed or not. The date and place of expiry of the credit. Negotiation period.

Details of the documents required and mode of transmission of documents (swift/mail/telex). The time bar within which the documents should be presented. Whether the credit is to be transferable one or not. Sales terms (FOB/C&F/CIF). Shipping mark. IRC Number and LCA Number. Insurance cover note. 5.12 Additional Instruments/Conditions:

Shipment/Transshipment not effected by Iraq, Montenegro, Cuba, Libya, Serbian, Israel, flag vessels/carriers or any vessel/carrier calling at any port of Iraq, Israel, Serbia, Montenegro, Cuba, Libya is prohibited. Radiation certificate is required in case of food items. All charges outside Bangladesh are of account of importer or beneficiary. The above information is provided along with the following documents. Performa Invoice or Indent stating the description of the goods including quantity, unit price etc. Insurance Cover Note with money receipt, name and address of issuing company and the policy number. Four set of IMP (Import) Form. 5.13 Scrutiny of L/C Application: On receipt of L/C application, the branch officials scrutinize the same very carefully giving emphasis to the following: The terms and conditions of the L/C must be complete with UCPDC 500 and Exchange Control & Import Trade Regulation. L/C application is stamped, as it is a guarantee of payment. All the information mentioned in different columns has been furnished. Eligibility of the goods to be imported. If L/C is opened against indent, Bangladesh Banks permission, valid registration, authority to issue indent by indenter are to be checked. The L/C must not be opened in favor of the importer or his agent.

 The importer agreeing all terms and conditions mentioned in the application must sign L/C. IMP form duly filled and signed. Validity of IRC. HS code of the goods. Insurance cover mode with date of shipment. Radioactivity report in case of old machinery. Certificate declaring that the item is in operation not more than 5 years in case of car. 5.14 Accounting Procedure in Case of L/C Opening: When the application is found to be in order and the client has sufficient approved credit line for opening an L/C, vouchers are prepared to record the contingent Liability for the L/C opened and realized margin, commission, Telex charges, postage etc. as per banks schedule of charges/sanction letter. Accounting treatment at the time of L/C opening is follows: For recording Contingent Liability, Customers liability.Debit Bankers liability.Credit For realization of margin, commission, telex and other charges. Customer A/CDebit Margin on L/C ..Credit Commission on L/C...Credit Telex/Postage ChargeCredit Miscellaneous ChargeCredit After that, L/C number and above entries are given in the L/C register. L/C opening register has following details: Date, L/C number, Name of the customer, Foreign currency amount, Exchange rate, Taka equivalent and source of import. Goods, country of origin, advising bank, expiry date, margin. Charges: Commission, Postage, SWIFT. 5.15 Distribution:

After giving the accounting entries the transmission of L/C is done. Bangladesh Commerce Bank Limited, Principal Branch takes the following steps through SWIFT to advise the L/C to the beneficiary: Send the signed original L/C together with the copy to the dispatch section for mailing to the L/C advising bank and L/C reimbursement bank respectively by Courier/ Air mail. Send the approved text of L/C and reimbursement authorization to SWIFT service in-charge for their onward transmission to advising bank and reimbursing bank respectively. Deliver the customer copy of the L/C along with the Debit Advise to the customer over the counter or send the same to the dispatch section for onward delivery to the customer. Send the original accounting vouchers in batches to the accounts section for capture and updating of the data-base/records. Check the L/C file to ensure that all the related documents i.e. L/C application with supporting documents, approval, L/C copy, reimbursement instruction copy and copy of accounting vouchers are filled properly 5.16 Amendment of L/C: Parties involved in a letter of credit, particularly the seller and the buyer cannot always satisfy the terms and conditions in full as expected due to some genuine reasons. In such a situation, the letter of credit is amended. In Revocable letter of credit, it can be amended or cancelled by the issuing bank at any mount and without prior notice to the beneficiary. But in case of irrevocable letter of credit, it can never be amended or cancelled without the agreement of the issuing bank, the confirming bank (if any) and the beneficiary. When the customer approaches for amending the terms and conditions of a L/C opened at his request, BCBL checks the following: 1. The type of amendment the customer is asking for:

Whether it is concerning an increase of decrease in the L/C amount. Whether it is concerning extension of shipment/expiry date of the L/C. Whether it is relation to change in the merchandise/mode or route of transportation.

2.

Depending on the type of amendments, bank has to review the matter in the same way as applicable while opening a L/C in accordance with the provisions. 5.17 Procedure:

On receipt of a request letter for amendment of L/C from the customer the bank takes the following steps: 1. Record the date and time of receipt of the application.

2. Read the request letter for amendment briefly to ensure that concerned L/C number and the instructions mentioned are clear. 3. If found in order check the request letter for amendment together with all supporting papers. 4. In case the letter of amendment is completed or required papers neither are nor submitted, the customer should be contacted promptly for rectification of the defects. 5. In case the customers do not have approved credit line for increasing/amending the L/C, the import section has to submit proposal to the Executive Committee of the Board and keep pending of amending the L/C till its approval. 6. When the request letter for amendment with all papers found to be in order, record the particular of amendments with date in appropriate column against the relevant L/C in the L/C register. 7. Prepare the letter of amendment either in mail, SWIFT telex format. 5.18 Account Entries: After preparing the letter of amendment, the bank prepares the vouchers so amend the amount of contingent liability for increase (in case of increase in L/C value) and commission & charges. In case of decrease in L/C value, refund the margin to the credit of customer account if the L/C was established fewer than 100% margin, otherwise management consent is required. The accounting treatments are as follows: a) For amending contingent liability, Increase of L/C value Customer liability.Debit Bankers liability ......................Credit Decrease of L/C value Bankers liability .Debit Customer liability Credit b) For increase of L/C value, Customer A/C ..Debit Margin on L/C .Credit Commission on L/C Credit MISC charges .....Credit Telex/Postage charges.Credit c) Form refunding customers liability (after the amendment by the advising bank) Margin A/C Debit CD account of customerCredit

BCBL, Principal Branch transmits the letter of amendment to the advising bank and L/C Reimbursing Bank respectively by Courier/ Air Mail. A letter of amendment executed by the issuing bank becomes enforceable / valid only after agreement of the party in documentary credit operation. 5.19 Adding Confirmation; Sometimes beneficiary or supplier of the goods insists the importer for adding confirmation to L/C or to issue L/C with added confirmation. In that case, at the request of the importer, the issuing bank requests the advising bank or the third bank to add their confirmation to the L/C. Normally the charge of confirmation is borne by the beneficiary and it differs from bank to bank. 5.20 Examination of Shipping Document: The seller being satisfied w3ith the terms and conditions of the credit proceeds to dispatch the required goods to the buyer, has to present the documents evidencing dispatching of goods to the Negotiating Bank. The exporter will submit those documents in accordance with the terms and conditions as mentioned in L/C. Generally the exporter sends the following documents: Commercial Invoice. Bill of Lading. Packing List. Certificate of Origin. Bill of exchange. Clean Report of Finding (CRF) Weight List. Insurance Cover Note. Pre-Shipment Certificate. 5.21 Bill of Exchange: Bill of exchange is an unconditional order written (signed) by the drawer, to another person (the drawee) which directs to pay a certain sum at sight or at fixed or further determinable date to the order of the party which is to receive payment. Officials check the following in the bill of exchange: That the bill of Exchange has been properly drown and signed by the beneficiary as mentioned in the L/C terms. That the draft amount drawn does not exceed the amount available under the credit. That the amount is identical with that mentioned in the invoice. That the bill exchange is in order and endorsed properly

5.22 Commercial Invoice: Commercial Invoice issued by exporter is the bookkeeping instruments for the import. The invoice is the list of articles containing their particulars and prices. Here the following points are checked. That the merchandise is properly invoiced by the beneficiary. That the merchandise is invoiced to the importer on account of whom the L/C was opened. That the description of the merchandise as shown in the invoice corresponds to that required in the L/C. That the unit price of the merchandise in the invoice tallies with that of the unit price stipulated in the L/C and indent. That the invoice has been correctly and properly drawn and signed by the beneficiary as per terms of L/C. That the relevant LCA form number, IRC number of the importer along with the Registration number of the indenter with Bangladesh Bank, are correctly incorporated in the invoice. 5.23 Bill of Lading: A bill of lading is a document generally issued by a carrier to a shipper, usually stipulated in a credit when exporter dispatches the goods. It is an evidence of a contract of carriage, and is a document of title to goods. It also constitutes a document that is or may be, needed to support an insurance claim. The key check points are as follow: That the bill of lading is clean Shipped on Board B/L showing fright prepaid and properly endorsed. That the bill of lading covers the merchandise described in the invoice. That the port of shipment, port of destination, date of shipment, the name of the consignee etc. shown in B/L are in agreement with those mentioned in the L/C. That the bill of lading is properly signed by authorized signatory of the Shipping Company or by their authorized agents. That the bill of lading is not stale and has been produced in full set as per terms of L/C. 5.24 Certificate of Origin: In case of certificate of origin the officials check that the certificate of origin of the merchandise is in conformity with that stipulated in the L/C.

5.25 Other Documents: Other documents called for in the credit such as packing list, weight list, inspection certificate etc. to be checked whether drawn and issued in accordance with the terms of the credit. 5.26 Lodgment of Import Document: On scrutiny, if it is found that the documents drawn in conformity with the terms of the credit, Mercantile Bank Principal branch lodges the documents in Payment Against Documents (PAD) register/database giving a bill reference serially in numerical order. The Bank that opens the letter of credit is bound to honor its commitment to pay for import bills when these are presented for payment, if drawn strictly in terms of letter of credit. The opening bank will lodge the shipping documents to their book and will respond to the debit advice originated by the foreign correspondent to the debit of Payment against Documents A/C or Bills of Exchange A/C and present the bill to the importer for payment. The following steps are involved in lodgment: 1. First all the particulars of the documents are entered in the PAD register and PAD No. Seal is given on all the copies of the received documents. 2.Convert the foreign currency into Bangladeshi currency. 3.Reverse the contingent liability and entry made in the liability register. 4.Prepare lodgment voucher. 5.Send IBCA to the Head Office. 5.27 Retirement of Documents: The importer receives the intimation and gives necessary instruction to the bank for retirement of the bills or for the disposal of the shipping documents to release the imported goods from the customs authority. The importer may instruct the bank to retire the documents by debiting his account with the bank. During delivery of the documents the following accounting entry is give:Customer A/C or LTR A/C (with PAD interest) ........Debit Margin on L/C A/C .....................................................Debit PAD A/C .....................................................................Credit Interest /Commission A/C ...........................................Credit 5.28 Shipping Guarantee: In the absence original documents, goods may be cleared by non-negotiable copies of documents against shipping guarantee issued by L/C opening bank. The importer requests the bank to issue shipping guarantee/indemnity for clearance of consignment against non-negotiable copies of documents received directly from the exporter as per clause incorporated in the L/C. before

issuance of shipping guarantee, bank recover full value of import documents and collect an undertaking from the importer that they will accept original documents in spite of any discrepancy and bear rate fluctuation of foreign currency at the time of lodgment. 5.29 Export Section According to Foreign Exchange Regulation Act, 1947, nobody can export by post and otherwise any goods either directly or indirectly to any place outside Bangladesh, unless a declaration is furnished by the exporter to the collector of customs or to such other person as the Bangladesh Bank may specify in this behalf that foreign exchange representing the full export value of the goods have been or will be disposed of in a manner and within a period specified by Bangladesh Bank. Payment for goods exported from Bangladesh should be received through an Authorized Dealer in freely convertible foreign currency or in Bangladeshi Taka from a Non-Resident Account. The Export section deals with two types of Letter of credit that are as follows: Export Letter of Credit Back-to-Back Letter of Credit Export financing can do pre-shipment credit and postshipment credit. In case of pre-shipment financing 90% is financed by the bank, 75% is by Back-to-Back L/C and 15% by cash credit. 5.30 Export Letter of credit: The other type of L/C facility offered by the Bank is Export L/C. Bangladesh exports a large quantity of goods and services to foreign households. Readymade textile garments (both knitting and wove) jute, jute-made products, frozen shrimps, tea are the main goods that the Bangladeshi exporters export to foreign countries. Garments sector is the largest sector that exports the lion share of the countrys export. Bangladesh exports most of its readymade garments products to USA and European Community (EC) Countries. Bangladesh exports about 40% of its readymade garments products to USA. Most of the exporters who export through Bangladesh Commerce bank are ready made garment exporters. They open L/C in this branch to export their goods, which they open against the import L/C opened by their foreign importers. The following services provided by Bangladesh Commerce bank Principal Branch against export L/C: 5.31 Advising of Export L/C: The advising bank getting the import L/C sent by the issuing bank located abroad will advise the L\C to the beneficiary without any engagement or responsibility on their part. It will see the following only: Authenticity of L/C (Test agreed in case Telex L/C and signature verified in case (Air Mail L/C) Merchandise specified in the L/C is permissible and clauses incorporated in the L/C are not against countrys regulations. 5.32 Add Confirmation of Export L/C:

Bank may add addition confirmation to export L/C where there are specific instructions from the L/C issuing bank to do so. Additional confirmation of L/C gives the seller a double assurance of payment. Banks requiring of adding confirmation: Issuing Bank should be a reputed bank. Credit line /Arrangement with the L/C issuing bank. L/C clause is to be acceptable to confirming bank Approval from the competent authority for adding confirmation of exports L/C. Confirmation charges are to be recovered as per rules. 5.33 Negotiation of export Bill: Negotiation means that negotiating banker pays to the drawer the value of the bill on the assurance given by the opening banker. When documents are presented for negotiation under letter of credit, the same is thoroughly examined from the point of view of correctness and completeness in all respect of terms of credit. The exporter submits the documents to bank as per requirement of bank. 5.34 Formalities for Export Letter of Credit: The export trade of the country is regulated by the Import and Export Control Act, 1950.There are number of formalities that an exporter has to fulfill before and after shipment of goods. These formalities or procedures are enumerated as follows: 5.34.1 Export Registration Certificate (ERC): The exports from Bangladesh are subject to export trade control exercised by the Ministry of Commerce through Chief Controller of Import & Exports (CCI&E). No exporter is allowed to export any commodity permissible for export from Bangladesh unless he is registered with CCI&E and holds valid ERC. The ERC is required to be renewed every year. The ERC number is to be incorporated on EXP (Export) Forms and other documents related with export. 5.34.2 The EXP Form: After having the registration, the exporter applies to Bangladesh Commerce bank Principal Branch with the Trade License, ERC and the Certificate from the concerned Government Organization to get EXP Form. If the branch is satisfied, an EXP Form is issued to the exporter. An EXP Form usually contains the following: Name and address of the Authorized Dealer. Particulars of the commodity to be exported with description and code number. Name and address of the exporter and importer. Country of origin. Port of shipment, date Port of destination.

 Quality. L/C value in foreign currency. Terms of sale. Bill of lading /Railway Receipt/ Airway Bill /Truck Receipt number and date. CCI&Es registration number and date. Securing the Order: Upon registration, the exporter may proceed to secure the export order. Contracting the buyer directly through correspondence can do this. 5.34.3 Signing of the Contract: While making a contract, the following points are to be mentioned: a. b. c. d. e. f. Description of Goods Quantity of the commodity Price of the commodity Shipment Insurance and Marks Inspection 5.34.4 Procuring the Material: After making the deal and having the L/C opened in his favor, the next step for the exporter is set about task of procuring the merchandise. 5.34.5 Registration of Sale: This is needed when the proposed items to be exported are raw jute and jute made goods.

5.34.6 Shipment of Goods: The following documents are normally involved at the stage of shipment: a. EXP Form b. c. d. Registration Certificate Contract Copy of L/C

e. Freight Certificate from the bank in case of payment of freight if the port of lading is involved. f. g. h. Truck Receipt, Railway Receipt; Shipping Instruction; Insurance policy.

The following points should be checked. The terms of L/C are in conformity with those of the contract. The L/C is an irrevocable one, preferably confirmed by the Advising Bank. The L/C allows sufficient time for shipment and reasonable time for registration. If the exporter wants the L/C to be transferable, advisable, he should ensure those stipulation are mentioned in the L/C At last the exporter submits all these documents along with a letter of Indemnity to Bangladesh Commerce Bank Ltd. Principal Branch for negotiation. An officer scrutinizes all the documents. If the documents are clean one the bank might decide to purchases the documents within the limit sanctioned to the exporter, after verifying the confirmed order covering each export. This is known as Foreign Documentary Bill Purchase (FDBP). 5.35 Procedure for Foreign Documentary Bill Purchased After purchasing the document, Mercantile Bank Principal Branch gives the following entries: a. Before realization of proceeds

FDBP A/C ....................................Debit Customer A/C...............................Credit b. Adjustment after realization Trust Bank Limited General A/C........................Debit FDBP A/C............................................................Credit 5.36 Negotiation: If the documents are free from discrepancy or if the discrepancies are covered by Indemnity of the party, bank has to negotiate the Export Bills. For negotiation of cash export bill OD buying rate prevailing on the date of negotiation is applied for conversion of the foreign currency into Bangladesh currency. For this, the following entry is given, Foreign Bills Negotiated A/C ................Debit Party A/C ................................................Credit

Before the close of the business, a consolidated voucher is passed against the total amount of all the bills negotiated on that particular day. BCBL General A/C.................Debit Foreign Bills Negotiated A/C....................................Credit All the transactions are reported to the Head Office. The Head Office Credits the Foreign Bills Negotiated A/C by debit the balance with foreign banks abroad A/C. After negotiation of the export bill, the documents are to be sent abroad (Normally to the L/C issuing bank) as per the instruction of L/C and claim Reimbursement of the proceeds from the Bank as mentioned in the L/C. 5.37 Risk Involved in Negotiation: If the bank failed to identify any discrepancy in documents prepared by the Exporter, on that time the amounts are paid to the exporter then the Bank face a great loss. In this situation the Negotiating Bank try to contact with the party and if they agree to deliver the required documents, the Bank gets rid of the huge loss. 5.38 Inward Foreign Bills for Collection (IFBC): The bank uses to receive documents from foreign banks on collection basis. Here the collecting bank acts as an agent of their foreign correspondent. Sometimes authorized dealer against L/C opened by them receives the collecting documents. When beneficiary is unable to submit documents as per L/C terms and there are major discrepancies in the documents, the same are sent on collection basis. The liability of the bank with respect to the handling of collection documents is restricted mainly to the forwarding and releasing of documents against payment or acceptance. The bank does not assume any responsibility if the buyer does not want or is unable to meet his payment. BCBL, Principal Branch forwards the documents for collection due to the following reasons: a. If the documents have discrepancies. b. c. If the exporter is a new client. The banker is in doubt.

IFBC signifies that the exporter will receive payment only when the issuing bank gives payment. The exporter submits duplicate EXP Form and Commercial Invoice. Subsequently, the value of the bill is calculated and the following accounting entry is givena. Lodgment (Accepted for sending on collection) Customer liability on IFBC..................Debit Bankers liability on IFBC ..................Credit b. Retirement / Payment Bankers Liability on IFBC .......................debit Trust Bank Limited General A/C...............Debit

Clients A/C...............................................Credit BCBL General A/C....................................Credit Postage A/C................................................Credit Income A/C profit on exchange.................Credit After passing the above vouchers and Inter Branch Debit Advice is sent for debiting the NOSTRO Account. NOSTRO Account means Our account with you: The account that a home bank maintains with a foreign bank is known as NOSTRO Account. For example, Trust Banks US Dollar account maintained with City Bank NA New York, USA is NOSTRO Account of Trust Bank. An IFBC Register is maintained, where first entry is given when the documents are forwarded to the issuing bank for collection and second one is done after realization of proceeds. 5.39 Inland Letter of Credit (ILC): Inland Letter of Credit means L/C within the country. This type of L/C is opened when seller does not have trustworthy relationship with the buyer though they are in the same country and also in the case where the business involved a big amount. 5.39.1 Settlement of Local Bill: The customer submits the L/C to the branch along with the documents to negotiate.

The branch officials scrutinize the documents to ensure conformity with the terms and conditions. The documents are then forwarded to the L/C Issuing Bank. The L/C Issuing Bank gives the acceptance and forwards an acceptance letter.

Payment is made to the customer on either by collection basis or by purchasing the documents. Accounting entries are made for purchasing the local bill is as follow: Local Bill Purchase A/C ................Debit Clients A/C ...................................Credit Commission A/C....................................Credit Interest A/C...................................Credit A Local Bill Purchase (LBP) register is maintained to record the acceptance of the issuing bank. Until the acceptance is obtained, the record is kept in a collection register. 5.39.2 Back-to-Back Letter of Credit: Back-to-Back L/C is a secondary L/C opened by the sellers bank based on the original/master L/C to purchase the raw materials and accessories for manufacturing of the export products required by the seller. Under the Back-to-Back concept, the seller as the beneficiary of the master L/C offer it

as a security to the advising bank for the issuance of the second L/C. The beneficiary of the Back to-Back L/C may be located inside or outside the original beneficiarys country. In case of Backto-Back L/C, the bank takes no cash security (margin). Bank lines the Master L/C and the drawn bill is a Useable / Time bill. Readymade garment industries and specialized Textile units have been allowed the facility of importing fabrics and other material / accessories needed for manufacturing garments / specialized textile, free of duty under bonded warehouse system against back-to-back L/C arrangement, without involving cash foreign exchange from Bangladesh Bank. The Bangladesh Bank has therefore allowed the authorized dealer to open Back-to-Back L/C for import of raw materials by the readymade garment industries / Specialized textile unit to carry out their export orders against export L/C. In our country, export oriented Garment Industry, operating under bonded warehouse system are availing Back-to-Back facilities. In Trust Bank, Principal Branch most of the Backto-Back L/C opened on Garment Industry Account. Therefore the discussion is based on account of garment Industry in Bangladesh. 5.39.3 Opening of Back-to-Back L/C: Besides normal formalities and requirements for L/C opening, the following points are considered. 1. No Back-to-Back L/C on account of Garment industries should be opened without prior approval from Head Office. Branches are required to obtain prior approval from Head Office Division/Credit Committee for opening all Back-to-Back L/C. 2. While opening of Back-to-Back L/C following instruction should be followed. Separate L/C number should be used for Back-to-Back L/C and are to be recorded in separate Register. L/C opening commission and charges are to be realized as usual. The following contingent liability vouchers are to be passed at the time of opening the L/C. Customer liability for Back-to-back L/C....................Debit Bankers liability for Back-to-Back L/C.....................Credit 5.39.4 Documents Required for Opening a Back-to-Back L/C: In Bangladesh Commerce bank Principal Branch, following papers/ documents are required for opening a Back-to-Back L/C. 1. Master L/C 2. 3. 4. 5. 6. Valid Import Registration Certificate (IRC) and Export Registration Certificate (ERC). L/C Application and LCAF duly filled and signed. Proforma Invoice Indemnity or undertaking No objection from previous bank (if any)

7. 8. 9. 10.

Factory inspection certificate Insurance cover note with money receipt IMP form duly signed VAT Registration

In addition to above documents, the following are also required to export oriented garments industries while requesting for opening a Back-to-Back L/C a. Textile Permission b. c. d. Valid bonded warehouse license Quota Allocation Letter issued by the Export Promotion Bureau (EPB) in favor of applicant for quota items. BGMEA Membership.

In case the factory premises is a rented one, the Letter of Disclaimer duly executed by the owner of the house / premises to be submitted. A checklist to open a Back-to-Back L/C as follows: Applicant is registered with CCI&E and has bonded warehouse license. The master L/C has adequate Validity period and has no defective clause. L/C value shall not exceed the admissible percentage of net FOB value of relative master L/C. Usage period is up to 180 days. 5.39.5 Payment of Back-to-Back L/C: Payments of import bills against Back-to-Back L/Cs are made from relative export proceeds of export oriented Garment Industry operating under bonded warehouse system. Therefore at the time of negotiation of export bills on account of garment factory bank retains a portion covering to Back-to Back liability to a separate foreign currency account from the export proceeds. The amount is kept in Foreign Bills Payment Awaiting Remittance (FBPAR) A/C. After realization of export proceed, payment against import bills are made from FBPAR A/C. L/C wise and party wise A/Cs are maintained in FBPAR ledger. On 30/60/90/120/180 days of maturity period, deferred payment is made. Payment is given after realizing export proceeds from the L/C Issuing Bank. For garment sector, the duration can be maximum 180 days. In case of export failure or non-realization /short realization of export proceeds forced loan i.e. OAP has to be created in order to settle the Back-to-Back L/C payment. Vouchers and accounting treatments are the same normal L/C opening except margin. In this case, the bank takes no margin. After lodgment, maturity date of the import bill is intimated to foreign bank as per L/C terms. The documents are delivered to the order of opener duty endorsed for clearance of goods from custom authority. Goods are cleaned through approved clearing and forwarding agent of the bank.

5.39.6 Accounting Treatment of Back-to-Back L/C (Negotiation): Foreign Bills Purchase .....Debit FBPAR A/C......................Credit Partys A/C.......................Credit (Deducting import & other liability) On realization of export proceeds, usual realization vouchers are passed for adjustment of FBP. After realization of export precedes payment of import bills are made from FBPAR A/C and following vouchers are passed. FBPAR A/C............................................Debit Trust Bank Limited General A/C............Credit If the party is paid in foreign currency, BC rate is applied in this regard. Foreign remittance department takes the TT&OD rate. 5.40 Foreign Remittances Foreign remittance means purchase and sale of foreign currencies. From March 1994 Bangladesh Taka becomes convertible for current account transactions and thus most of the foreign remittances are allowed by authorized dealers as empowered by Bangladesh Bank. There are two types of Foreign Remittance: A. Foreign Outward Remittance B. Foreign Inward Remittance 5.40.1 Foreign Outward Remittances: Outward Remittances means sale of foreign currencies which constitutes remittances from Bangladesh by TT, FDD, TC etc. to a foreign country or local currency credited to non-resident Taka account of foreign banks or convertible Taka account and also endorsement (issue) of Foreign currency including TC on foreign travel purpose. 5.40.2 Approval of Bangladesh Bank: Most outward remittances are approved by the Authorized Dealers on behalf of the Bangladesh Bank following declaration of Taka as convertible for current account payments from March 1994. No remittance can be transferred outside Bangladesh without prior permission of Bangladesh Bank. Following documents are required for approval: a. IMP Form b. T/M (Travel & Miscellaneous) Form a. b. c. 5.40.3 Modes of outward Remittances Issuance of Foreign Demand Draft (FDD) Issuance of travelers cheques (TC) Endorsement of USD in Passport

5.40.4 Purpose of Outward Remittances: The Foreign Remittance department of Bangladesh Commerce Bank Limited Principal Branch is equipped with a number of foreign remittance facilities. Following are the types of foreign remittance facilities offered by Bangladesh Commerce Bank Limited. a. Remittances of Profit of Foreign firms / Companies Foreign Firms /Companies /Banks/Institutions operating in Bangladesh are allowed to remit their net profit on payment of taxes after fully complying with the requirements. The application or remittances of profit is to be made on T/M Form supported by some main documents like, Audited Balance Sheet and Profit & Loss A/C certified copies of Final Income Tax Assessment Orders and Forms etc. b. Remittances of Dividends Remittances of dividends payable to Non resident shareholders of the companies operating in Bangladesh are allowed by Authorized Dealer Branches without prior approval of Bangladesh Bank on receipt of the application in the prescribed form in triplicate duly signed by the company and certified by the auditors and supported by some documents like, Certificate of Incorporation, Final Income Tax Assessment Order etc. 5.40.5 Foreign Inward Remittances: Authorized Dealers purchase foreign currencies including TT, FDD, TC etc. also raise debits to non-resident Taka accounts of the respective bank branches. Inward remittance of USD 2,000.00 and above should be reported on form C. The purpose of remittance should be clearly written in form C and declaration on this form is not required against remittances sent by Bangladesh nationals working abroad. 5.41 Travelers Cheques (TC): The payment to the customer is made instantly by debiting foreign bill purchased account. As soon as collecting bank abroad informs Bangladesh Commerce Bank Limited about the realization of the travelers cheques, the branch debit that particular foreign bank account and adjust the foreign bill purchased account. The branch takes following steps chronologically as follows: a. The signature of the party is taken on the TC and verified with that of his passport signature to make sure that the particular TC belongs to the person. If the signatures match bank accepts the TC for encashment. b. Verify the passport, get the ticket signed by the party and pay the commissions in local currency to the party retaining the amount of commissions and then pass the entries.

c.

The TC is allotted with a FBP No and entry is passed into the FBP register. After that on the back of the TC the endorsement payees A/C credited is written along with the FBP No.

The following vouchers are passed: Purchase of TCs ......................Debit Cash (Tk.).................................Credit While sending the TC to foreign correspondents for collection through HO: Foreign Bills purchased ...........................Debit Purchase of TCs ...................................Credit Than a schedule is prepared in four sets. First three copies are forwarded with the TC to the foreign bank and the fourth copy is kept in the FBP lodgment file along with a copy of TC. When the branch gets the credit advice against the proceeds from our NOSTRO A/C with which the transaction took place, we adjust the FBP liability by passing the following vouchers: Trust Bank Limited General A/C .................................Debit Foreign Bill Purchased .................................................Credit Income A/C Exchange gains ........................................Credit 5.41.1 Endorsement of USD in passports: Requirements for Endorsement of Cash Dollar/TCs on passport: Valid Passport (photocopy page 1 to 6) Visa T/M Form to be filled up (Banks prescribed form) by the applicant. Government Order/ Posting Order. 5.41.2 Encashment of Foreign Currency Notes from Tourists: First the bank examines the currency notes carefully to be satisfied about their genuineness. Then convert the foreign currency into local currency at OD buying rate of exchange ruling on the day. Endorse the amount on the passport; prepare the required vouchers showing the rate of exchange, commission and net amount payable. Deduct the amount of commission at the prescribed rate and pay the balance to the Tourist after obtaining his signature on the back of the voucher. The following entries are passed: Cash Foreign Currency ...................Debit Cash Local Currency ......................Credit

Then record the transaction in the relevant register and get the entry authenticated by the supervising officer. Encashment of DD/MT/TT received from Foreign correspondent for credit to clients account. Officers verify the authenticity of the instrument with reference to Test Key/Authorized specimen signature, on the instrument from office record and enter the particulars in the register. The following entries are passed: BCBL General A/C. Head Office ...................................Debit Remittance awaiting disposal TT/MT payable A/C (FC) .................Credit Clients A/C..............................................Credit Income A/C Commission...............Credit After passing the above entry officers issue necessary IBDA to Head Office and credit advice to client. Before effecting payment against remittances against telegraphic transfers, Principal branch receives authenticated advice /payment instruction from the issuing / remitting branch. 5.42 Foreign Currency AccountThere are three types of Foreign Currency Account. This are Private Foreign Currency Account Non-resident Foreign Currency Deposit Account Residential Foreign Currency Deposit Account To open a Foreign Currency account the person has to fill up the Foreign Currency Account form. In the form the person have to fill up Name of Account S/O. / D/O. /W/O Passport No. Date of issue Issued by Present Address Permanent Address Name of Nominee Address of Nominee Signature in the specimen card Requirements for opening a Foreign Currency Account Duly filled in FC account opening form and signature card Two copies of photograph of account holder (passport-size) Two copies of photograph of nominee duly attested by the account holder (passport-size),if any. Photocopy of the valid passport of first seven pages including visa page. Photocopy of the valid Passport of first seven pages if the applicant is Foreign Immigrant. Payment into the FC account may be effected through Foreign Telegraphic Transfer (FTT)/ foreign draft/ pay order/cheque (if any).

5.43 Wage Earner Development Bond (WEDB): Wage Earner Development Bond (WEDB) is a government bond approved by Bangladesh Bank. People who are working abroad and earning foreign currency only they can apply for this type of bond. One can purchase this type of bond only by the foreign earning that mean by the foreign currency. At the end of the day the bank need to send a daily sales statement sales of Wage Earner Development Bond (WEDB) to the Bangladesh Bank. 5.43.1 Types of WEDB There are three different values of Wage Earner Development Bond (WEDB). These are the followingTk. 25,000/Tk. 50,000/Tk. 1,00,000/ Interest RateThe interest rate is 10%. (a) On half-yearly basis at simple rate. (b) On maturity of the bond at half-yearly compound rate. Maturity PeriodThe maturity period is 5 years. 5.44 Lien on WEDB When the bondholder need money, then he/she can get the money by the lien of bond. One can get 90% money against the Wage Earner Development Bond and have to pay 1% sanction charge against the sanction money.