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Appendix: 1

INTERNATIONAL TRADE FINANCE

Project submitted to

H & G H Mansukhani Institute of Management

in partial fulfillment of the requirements for

Master in Management Studies

By

KAPIL P. ISRANI Roll No: 16Specialization MMS (FINANCE)Batch: 2010 - 2012

Under the guidance of

(Prof. ANJALI SAWLANI)

Appendix 2:

INTERNATIONAL TRADE FINANCE

Project submitted to

H & G H Mansukhani Institute of Management

in partial fulfillment of the requirements for

Master in Management Studies

By

KAPIL P. ISRANIRoll No: 16Specialization MMS (FINANCE)Batch: 2010 - 2012

Under the guidance of(Prof. ANJALI SAWLANI)

Appendix: 3

H & G H Mansukhani Institute of ManagementUlhasnagar

Students Declaration

I hereby declare that this report submitted in partial fulfillment of the requirement of MMS Degree of University of Mumbai to H & G H Mansukhani Institute of Management. This is my original work and is not submitted for award of any degree or diploma or for similar titles or prizes.

Name : KAPIL P. ISRANI

Class : MMS FINANCE

Roll No. : 16

Place : Ulhasnagar

Date :

Students Signature :

Appendix: 4

Certificate

This is to certify that the dissertation submitted in partial fulfillment for the award of MMS degree of University of Mumbai to H & G H Mansukhani Institute of Management is a result of the bonafide research work carried out by Mr. KAPIL P. ISRANI under my supervision and guidance, no part of this report has been submitted for award of any other degree, diploma or other similar titles or prizes. The work has also not been published in any journals/Magazines.

Date Place:Ulhasnagar

Internal GuideExternal Guide

(Miss Anjali Sawlani)(Mr. K.V. Bandekar)

Director

Dr. Swati Sabale

EXECUTIVE SUMMARY

The project INTERNATIONAL TRADE FINANCE is a detailed study of the Import, Export, & Foreign Exchange Market of India with the main objective of making a successful career in the sector by getting placed with one of the Foreign Exchange companies.

The project has explored the need for trade finance and introduced some of the most common trade finance tools and practices. A proactive role of governments in trade finance may alleviate the lack of trade finance in emerging economies and contribute to trade expansion and facilitation.

Recent times have witnessed remarkable growth in international transactions. With the fast growing international oriented transactions in business enterprise. The different areas which play vital role in growth of Global Trade Finance market such as Methods of Payments of International Trade, Letter of credit, and concept of Forfeiting, Factoring, and Buyers Credit, Pre shipment & Post Shipment Financing and Role of ECGC in foreign exchange market.

While doing this project, different aspect of ECB, Buyers Credit, concept of LIBOR & Margins in Interest Rate were studied. Trade financing in India is in nascent stage in order to explore foreign exchange market & smooth functioning of transactions the government should undertake some initiative to with-stand among the developed countries.

Needless to say, no text paper or text book by itself can convey the full richness of either the theoretical development or subtleness if practice in its chosen fields. This Project is a sincere attempt to provide a basic understanding of the complexities of international trade of world finance in simple manner.

INTRODUCTION

The absence of an adequate trade finance infrastructure is, in effect, equivalent to a barrier to trade. Limited access to financing, high costs, and lack of insurance or guarantees are likely to hinder the trade and export potential of an economy, and particularly that of small and medium sized enterprises. As explained earlier, trade facilitation aims at reducing transaction cost and time by streamlining trade procedures and processes. One of the most important challenges for traders involved in a transaction is to secure financing so that the transaction may actually take place. The faster and easier the process of financing an international transaction, the more trade will be facilitated. Traders require working capital (i.e., short-term financing) to support their trading activities. Exporters will usually require financing to process or manufacture products for the export market before receiving payment. Such financing is known as pre-shipping finance. Conversely, importers will need a line of credit to buy goods overseas and sell them in the domestic market before paying for imports. In most cases, foreign buyers expect to pay only when goods arrive, or later still if possible, but certainly not in advance. They prefer an open account, or at least a delayed payment arrangement. Being able to offer attractive payments term to buyers is often crucial in getting a contract and requires access to financing for exporters. Therefore, governments whose economic growth strategy involves trade development should provide assistance and support in terms of export financing and development of an efficient financial infrastructure. There are many types of financial tools and packages designed to facilitate the financing of trade transactions. This introduces three types, namely:

Trade Financing Instruments; Export Credit Insurances; and Export Credit GuaranteesThe primary purpose of the foreign exchange is to assist international trade and investment, by allowing businesses to convert onecurrencyto another currency. For example, it permits a US business to import British goods and payPound Sterling, even though the business' income is inUS dollars. It also supports direct speculation in the value of currencies, and thecarry trade, speculation on the change in interest rates in two currencies.

In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market began forming during the 1970s after three decades of government restrictions on foreign exchange transactions (the Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major industrial states after World War II), when countries gradually switched tofloating exchange ratesfrom the previousexchange rate regime, which remainedfixedas per theBretton Woods system.

FEMA ACT 1999 Defines Foreign Exchange as Foreign Exchange means & includes:a) All deposits, credits and balances payable in foreign currency, and any drafts, travelers Cheques, letters of credit and bills of exchange, expressed or drawn in Indian currency and payable in any foreign currency. b) Any instrument payable at the option of the drawee or holder, thereof or any other party thereto, either in Indian currency or in foreign currency, or partly in one and partly in the other. DEALING IN FOREIGN EXCHANGEIn India dealing in foreign exchange is permitted only with the approval of RBI. RBI is the authority to administer exchange control in India. It also has the responsibility to maintain the external value of rupee. AD is person authorised by RBI in the form of a license to deal in foreign exchange. In addition to above category to buy & sell foreign currency / coins and FTC called money changers like hotels and business establishments.

Sr. No.SOURCES / INFLOW

USES / OUTFLOW

1INWARD REMITTANCE DD/MT/TT/CREDIT CARDOUTWARD REMITTANCE DD/MT/TT/CREDIT CARD

2REMITTANCE TO NRE/FCNR(B)/NRO ACCOUNTS

OUTWARD REMITTANCE

3EXPORT RECEIVABLESIMPORT PAYMENTS

4BORROWINGS BY COMPANIES, AID & LOANS

LOAN REPAYMENT, LOAN SERVICING

5TOURIST INCOME

TOUR, TRAVEL RELATED PAYMENTS, EXPORT RELATED PAYMENTS LIKE COMMISSION etc.

SETTLEMENTS OF ACCOUNTSWhenever, there is an international trade and inflow and outflow of foreign exchange, there must be some mechanism for settlement of these transactions. The need for settlement leads to opening of accounts by banks in other countries.

1. NOSTRO ACCOUNT

Banks in India are permitted to open foreign currency accounts with bank abroad. IOB having an account with American Express Bank New York is a Nostro Account. It is OUR ACCOUNT WITH YOU. When an Indian bank issue a foreign currency draft, payable abroad on a correspondent bank, the Nostro Account of the Indian bank is debited and the amount paid to the beneficiary. In the same way when the bill or Cheques is received for collection the proceeds will be credit to the Nostro Account Only.

Nostro accounts are usually in the currency of the foreign country. This allows for easy cash management because currency doesn't need to be converted.Nostro is derived from the latin term "ours."

2. VOSTRO ACCOUNT

It is the account in India in Indian rupees maintained by overseas bank. It Citi Bank, New York opens an account with IOB in India it is a Vostro Account. It is YOUR ACCOUNT WITH US. Any draft, TC, issued by overseas correspondent in Indian rupees is paid in India, to the debt of vostro account.

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

3. LORO ACCOUNT

This terminology is used when one bank refeers to the NOSTRO account of another bank. If IOB and SBI maintain nostro account with ABN AMRO Frankfurt, IOB, will refer to SBI account as LORO account IT IS THEIR ACCOUNT WITH YOU

4. MIRROR ACCOUNT