FUNCTIONS OF FOREIGN EXCHANGE

FUNCTIONS OF FOREIGN EXCHANGE

– By Anwarul Haque Qureshi

Commercials Banks have a vital role in the foreign trade of a country. They provide the finance needed to execute the transactions. They from the conduit pipe through which the documents and money are exchanged between the exporter and importer. They act as the extended arm of the Bangladesh Bank in administering the provisions of the Foreign Exchange Regulation Act. For the banks foreign exchange dealing is a specialized activity with good potential for profits.

FUNCTIONS OF A FOREIGN EXCHANGE DEPARTMENT:

Foreign Exchange is a highly specialized business and is, therefore, concentrated in selected branches of the bank. In most banks, the decision-making is done at the corporate level. The Foreign Exchange Department, also called the International Banking Division or International Division, is headed by a senior executive of the bank. An in depth knowledge of the rules and regulations of foreign exchange business in particular and banking in general and high level of awareness of the happenings in the international economic and political arena is expected from the Executive heading the department. Since foreign exchange business requires quick decisions, the Executive is vested with enough powers to take decisions on most of the situations that would arise in the dealings of the bank. Matters involving very large amounts and those beyond the discretionary powers of the Executive are referred to the Chief Executive of the Bank or its Board of Directors.

While policy decisions are taken and foreign exchange resources are managed at the corporate level, the actual dealing with the customers takes place at select branches of the bank authorized to deal in foreign exchange. Such branches are mostly concentrated in metropolitan cities and other places where either import or export trade predominated or inflow of foreign remittances is expected to be high. These branches can, however, function only within the guidelines prescribed by the head office, from time to time.

There may also be an intermediary tier at the Zonal or Regional level. In order to decentralize decision-making and reduce the problem of communication from head office to branches spread over the length and breadth of the country, special Department or Cells have been set up at these levels. They perform some of the functions like advising branches on the exchange rate to be quoted to customers, maintenance of foreign exchange balances abroad etc.

Banks have also set up at select metropolitan centers special branches dealing exclusively in foreign exchange, designated as Overseas Branches. Besides dealing directly with customers engaged in foreign trade, they also take on the role of special foreign exchange cells at national Zonal levels.

The Foreign Exchange Department at the Central/Zonal office or the overseas branch is divided into-well defined sections, each undertaking a specialized activity. Each section is further sub-divided into sub-sections or desks rendering specific tasks. There is no uniformity among banks either in the allocation of the tasks or in the designations of the officers manning the sections and sub-sections. Yet, an attempt is made below to delineate the important functions performed by the foreign exchange department of a bank. The functions are only briefly touched upon as they are elaborated in the lectures that follow.

FUNCTIONS OF FOREIGN EXCHANGE DEPARTMENT

Export

  1. Preshipment advances
  2. Purchase of foreign bills
  3. Negotiation of foreign bills
  4. Export guarantees
  5. Advising/Confirming letters
  6. Advance for deferred Payment exports
  7. Advance against bills for Collection

Import:
1. Opening of letter of credit
2. Advance bills
3. Bills for collections
4. Import loans and guarantees

Remittances:

  1. Issue of DD, MT, TT, etc
  2. Payments of DD, MT, TT, etc
  3. Issue and encashment of information
    travelers cheques
  4. Issue and encashment of foreign currency notes
  5. Non-resident accounts

Statistics:

1. Submission of returns
2. Collection of credit information

Dealings:
1. Rate computation
2. Maintenance of foreign currency accounts
3. Forwards contracts
4. Exchange position and cover operations

FUNCTIONS OF FOREIGN EXCHANGE

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