BFM forex question bank

BFM- Forex Question Bank

1. INCOTERMS stands for

a) Indian commercial terms

b) International Commercial Terms*

c) Invisible commercial terms

d) None of these.

2. Which of these is not true of UCP-600- Articles

a) These are rules

b) These are laws

c) These apply to any Documentary credit ( Including to the extent any standby letter of credit)*

d) They are binding on all parties thereto unless expressly modified or excluded by the credit.

3. Any person resident in India going outside India or having gone out of India on a temporary visit, allowed to take/ bring from/into India (other than to and from Nepal and Bhutan) currency notes of Government of India and Reserve Bank of India notes up to

a) 5000

b) 7500

c) 2500

d) 10000*

4. SPOT: Refers to transaction where delivery of foreign currency to be done on the -----working day from the date of contract

a) Second day*

b) Same day

c) Next day

d) None of these

5. Who is not considered as NRI for opening of NRE account?

a) Person resident in India leaves India for Nepal or Bhutan for taking up employment or for carrying on business or vocation outside India or for any other purpose indicating his intention to stay outside India for an uncertain period.

b) Students going abroad for Education.

c) Officials of central and state government and public sector undertakings deputed abroad on assignment with foreign governments / agencies/ organizations or posted to their own offices ( Including Indian diplomatic missions abroad )

d) Indians citizens working abroad on assignments with foreign government agencies or International / multinational agencies like united nations Organization (UNO) International monetary Fund ( IMF) , world bank(IBRD) etc

6. What is target for export finance for Public sector banks

a) 12 % of ANBC under Priority sector*

b) 12% of ANBC( NBC+ investment made by banks in non SLR bonds in HTM category

c) 10 % of ANBC under Priority sector

d) 10% of ANBC( NBC+ investment made by banks in non SLR bonds in HTM category

7. Export of computer software in CD to be declared on

a) GR Form

b) SDF Form

c) SOFTEX Form*

d) Either GR or SDF Form

8. Non-resident deposits is a

a) Current account transaction

b) Capital account transaction

c) Both of the above*

d) None of the above

9. What does ECGC do?

a) Provides a range of credit risk insurance covers to exporters against loss in export of goods and services

b) Offers guarantees to banks and financial institutions to enable exporters to obtain better facilities from them

c) Provides Overseas Investment Insurance to Indian companies investing in joint ventures abroad in the form of equity or loan.

d) All of the above*

10. All export contracts and invoices shall be denominated either in freely convertible currency or in Indian Rupees but export proceeds shall be realized in ----------

a) Freely convertible currency*

b) May either be in freely convertible currency or in Indian Rupees.

c) US Dollar

d) None of these

11. Present version of INCOTERMS is

a) 1990,

b) 2000

c) 2010

d) 2011*

12. If nothing is mentioned on letter of credit it is treated as

a) Revocable

b) Irrevocable*

c) Either of these at the option of Issuing Bank

d) Either of these at the option of Beneficiary

13. Travelers proceeding to countries other than Iraq, Libya, Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States Out of the overall foreign exchange being sold to a traveler, exchange in the form of foreign currency notes and coins may be sold up to

a) USD 5000

b) USD 3000*

c) No limit

d) None of these

14. In Conversion of proceeds of documents sent on collection basis the exchange rate applicable is

a) Bills Buying*

b) TT Buying rate

c) TT Selling rate

d) cross rate.

15. Who is person of Indian Origin (PIO)? A citizen of any country other than Bangladesh or Pakistan, if

a) He at any time held Indian passport.

b) He or either of his parents or any of his grand parents was a citizen of India by virtue of the Constitution of India or the Citizenship Act, 1955.

c) The person is a spouse of an Indian citizen.

d) All of the above*

16. In case of export finance refinance is not available from Reserve bank of India in which of the following

a) More than 180 days

b) PCFC*

c) Both of the above

d) None of the above

17. Customs will give their running serial number on both the copies of GR Form after admitting the corresponding shipping bill. The Customs serial number will have ---- numerals

a) 12

b) 10*

c) 9

d) 11

18. Applications by persons, firms and companies for making payments, exceeding USD 500 or its equivalent, towards imports into India must be made in Form ---

a) A-1*

b) A-2

c) A-3

d) None of these

19. Compliance with the provisions of may be ensured for import of drawings and designs

a) Research & Development Cess Act, 1986*

b) Indian contract act

c) International drawing and designs act

d) None of these

20. How does ECGC help exporters?

a) Provides guidance in export-related activities

b) Makes it easy to obtain export finance from banks/financial institutions

c) Assists exporters in recovering bad debts Provides information on credit-worthiness of overseas buyers

d) All of the above*

21. How many rules are there in present version of INCO TERMS?

a) 13

b) 11*

c) 10

d) None of these.

22. As per UCP-600 Branches of a bank in different countries are treated as

a) Same bank

b) Separate Banks*

c) Either of these at the option of Issuing Bank

d) Either of these at the option of Beneficiary

23. The form A2 relating to sale of foreign exchange should be retained for a period of --------by the Authorized Persons, together with the related documents, for the purpose of verification by their Internal Auditors

a) 6 months

b) one year*

c) Five years

d) Twelve years

24. Bills Buying Rate is not applied in case of

a) Purchase of export bill

b) Discount of export bill*

c) Negotiation of export bill

d) Documents sent on collection basis

25. Which of the following account can be opened jointly with Residents?

a) NRE Account

b) NRO account*

c) FCNR (B) account

d) None of the above.

26. In case of Deemed Exports maximum period for Post shipment Finance is

a) 180days

b) 365 days

c) 30 days*

d) None of the above.

27. For conversion NRE to FCNR, ------will be applicable and for converting FCNR to NRE , ------will be applicable

a) TT selling rate, TT buying rate.

b) TT buying rate, TT selling rate

c) Both of the above

d) None of these*

28. Within ------ days from the date of export, exporter should lodge the duplicate copy of GR Form together with relative shipping documents and an extra copy of the invoice with the bank named in the GR form

a) 7 days

b) 180 days

c) 30 days

d) 21 days*

29. Any person acquiring foreign exchange is permitted to use it

a) For the purpose mentioned in the declaration made by him to an Authorised Dealer

b) For any other purpose for which acquisition of foreign exchange is permissible

c) Both of the above*

d) None of these

30. Policies-SCR or Standard Policy is issued to exporters whose anticipated export turnover for the next 12 months is more than

a) Rs. 100 Lac

b) Rs. 50 lac* or 5 crore

c) Rs. 10 crores

d) Rs. 20 Lac

31. Which of the following is not an INCO TERM?

a) FOB (Free on Board)

b) FOR (Free on Rail)*

c) DAT (Delivery at Terminal)

d) All are INCO TERMS

32. The expression “on or about” or similar will be interpreted as a stipulation that an event is to occur during a period of

a) 7 days

b) 5 days*

c) 10 days

d) None of these.

33. An amount of -------or its equivalent, on the basis of self declaration that the applicant is buying exchange for medical treatment outside India, without insisting on any estimate from a hospital/doctor

a) USD 20000

b) USD 100000*

c) USD 200000

d) USD 10000

34. TT Selling rate is applied when

a) Clean outward remittances in foreign currency by TT/MT/DD

b) Crystallization of overdue export bill

c) Import documents received directly by the importer

d) all of the above.*

35. In NRO account what are provisions for repatriability

a) Current income

b) up to USD 1 million per financial year (April- March), for any bonafide purpose out of the balances in the account / sale proceeds of assets in India acquired by way of inheritance/legacy inclusive of assets acquired out of settlement subject to certain conditions.*

c) Both of the above

d) None of the above.

36. Remittances against imports should be completed not later than ----from the date of shipment, except in cases where amounts are withheld towards guarantee of performance, etc.

a) six months*

b) 180 days

c) 365 days

d) None of these

37. Banks may consider requests for grant of GR waiver from exporters for export of c, for export promotion up to 2 per cent of the average annual exports of the applicant during the preceding three financial years subject to a ceiling of Rs.----- lac

a) 1 Lac 

b) 2 lac 

c) 5 lac* 

d) None of these

38. A declaration to the Custom Authorities at the Airport in the Currency Declaration Form (CDF) if aggregate value of the foreign exchange in the form of currency notes, bank notes or travellers cheques brought in by such person at any one time exceed -----or its equivalent and/or the aggregate value of foreign currency notes (cash portion) alone brought in by such person at any one time exceed ----or its equivalent

a) USD 10000, USD 5000*

b) USD 10000, USD 10000

c) USD 5000, USD 10000

d) none of these

39. A person may bring into India from Nepal or Bhutan, currency notes of Government of India and Reserve Bank notes maximum up to

a) Rs.7500*

b) Rs.5000

c) No limit however, notes of denominations of above Rs.100 not permitted

40. In case of Guarantee of ECGC Default to be reported to ECGC within

a) 4 months*

b) 6 months

c) 12 Months

d) none of these

41. Which INCO Terms represents the maximum obligation for the seller

a) CFR

b) CIP

c) DDP*

d) CIP

42. As per UCP-600 the sale contract between the buyer has impact on operation of Letter of credit

a) To the extent mentioned in letter of credit

b) Is integral part of letter of credit

c) Has nothing to do even if mentioned in letter of credit

d) None of these.

43. Dance troupes, artistes, etc., who wish to undertake tours abroad for cultural purposes should apply to ------for their foreign exchange requirements.

a) The Ministry of External affairs, Government of India,

b) The Ministry of Human Resources Development (Department of Education and Culture), Government of India,*

c) The Ministry of Human Resources Development (Department of Education and Culture), Government of state concerned,

d) The Ministry of Human Resources Development Government of country to be visited

44. BILL SELLING RATE: is not used for

a) Transactions involving remittance for imports

b) Crystallization of overdue import bill

c) None of these

d) All of these

45. The power of attorney holder in case of NRE/ NRO is not allowed which of the following activities relating to account

a) Withdrawals for permissible local payments

b) Remittance to the account holder himself through normal banking channels.*

c) Closure of account

d) None of the above

46. What is the maximum amount for Advance Remittance for import of goods?

a) No ceiling*

b) USD 100000 or its equivalent

c) USD 500000 or its equivalent

d) None of these

47. Realization and Repatriation of export proceeds in case of Status Holder Exporters is ------ from the date of export

a) Twelve months

b) 180 days*

c) 360 days

d) none of these

48. Airline companies which have been permitted by the Directorate General of Civil Aviation to operate as a schedule air transport service, can make advance remittance without bank guarantee, up to -----.

a) USD 50 million*

b) USD 5 million

c) USD 1 million

d) None of these

49. When an exporter receives advance payment shall be under an obligation to ensure that –

a) The shipment of goods is made within 180 days from the date of receipt of advance payment;

b) The rate of interest, if any, payable on the advance payment does not exceed London Inter-Bank Offered Rate (LIBOR) + 150 basis points; and

c) The documents covering the shipment are routed through the bank through whom the advance payment is received.

d) All of the above*

50. Extension of due date beyond ----- days, in case of Guarantee of ECGS is to be sought

a) 180 days

b) 360 days

c) 270 days

d) 90 days*

51. Bank should obtain a report on each individual overseas supplier from the overseas banker or a reputed credit agency. However, such credit report on the overseas supplier need not be obtained in cases where the invoice value does not exceed -------and bank is satisfied about the bonafides of the transaction and track record of the importer constituent

a) USD 300000*

b) USD 500000

c) USD 100000

d) None of these

52. As per UCP-600 Banks deal with

a) Goods

b) Documents*

c) Both documents and goods

d) None of these

53. For Private Visits abroad (except Nepal and Bhutan) Release of foreign exchange admissible in one financial year, for one or more private visits is-

a) USD Two lakh

b) USD 10000

C) USD 25000

d) None of these.* (250000)

54. ----- means you bought and are holding it in the expectation that it will appreciate in value. ----means you are selling currency in the expectation that currency will depreciate in values

a) Long, Short

b) Short, long

c) Long, Long

d) Short, Short

55. The loans allowed to NRIs cannot be utilized for the purpose of

a) Re-lending

b) For carrying on agriculture or plantation activities

c) For investment in real estate business

d) All of the above*

56. In case of all imports, where value of foreign exchange remitted/ paid for import into India -------, it is obligatory on the part of the AD Category – I bank through whom the relative remittance was made, to ensure that the importer submits evidence of imports

a) exceeds USD 100000 or its equivalent*

b) exceeds USD 10000 or its equivalent

c) exceeds USD 500000 or its equivalent

d) None of these

57. The amount of undrawn balance is considered normal in the particular line of export trade, subject to a maximum of ----- per cent of the full export value.

a) 5

b) 20

c) 25

d) 10*

58. Where imports are made in non-physical form, i.e., software or data through internet / datacom channels and drawings and designs through e-mail/fax, a certificate from a -------- that the software / data / drawing/ design has been received by the importer, may be obtained

a) Chartered Accountant*

b) Reserve Bank of India

c) Department of Electronics Govt. of India

d) Registrar of Companies

59. Banks may approve, Reduction in Invoice Value in case of exports if satisfied about genuineness of the request, provided:

a) The reduction does not exceed 25 per cent of invoice value:

b. It does not relate to export of commodities subject to floor price stipulations

c. The exporter is not on the exporters’ caution list of the Reserve Bank,

d) All of the above*

60. Exchange Fluctuation Risk Cover of ECGC is intended to provide a measure of protection to exporters of capital goods, civil engineering contractors and consultants who have often to receive payments over a period of years for their exports, construction works or services. Where such payments are to be received in foreign currency, they are open to exchange fluctuation risk as the forward exchange market does not provide cover for such deferred payments. is available for maximum

a) 5 years

b) 10 years

c) 15 years*

d) 7 years

61. after goods have been shipped, they are to be transferred to a buyer other than the original buyer in the event of default by the latter, provided the reduction in value, if any, involved does not exceed 25 per cent of the invoice value and the realization of export proceeds is not delayed beyond the period of 12 months from the date of export

a) RBI permission is required

b) AD can permit

c) None of the above* 

d) All of the above

62. As per UCP-600 the drafts are to be drawn on

a) Applicant

b) Beneficiary

c) Issuing Bank*

d) Negotiating Bank.

63. Gift per financial year per remitter or donor other than resident individual is

a) USD 10000

b) USD 20000

c) USD 5000*

d) USD 25000

64. In forex market the maxim is Buy ---and sell ---.

a) Low, High*

b) High, Low

c) High, High

d) low, low

65. As per e-UCP in case bank’s system is unable to receive a transmitted electronic record,

a) The bank will be deemed to be close on that day and expiry date shall be extended to the first following banking day.*

b) Banks are not responsible

c) Bank is responsible as bank is supposed to keep its electronic system in proper form.

d) None of the above.

66. Loan against deposits allowed to NRIs is to be credited to

a) NRE Saving fund account

b) NRO Saving fund account*

c) To be paid in cash only

d) None of the above

67. Banks should normally dispatch shipping documents to their overseas branches/ correspondents expeditiously. However, they may dispatch shipping documents direct to the consignees or their agents resident in the country of final destination of goods in cases where:

a) Advance payment or an irrevocable letter of credit has been received for the full value of the export shipment

b) The exporter is a regular customer and the bank is satisfied, on the basis of standing and track record of the exporter and arrangements have been made for realization of export proceeds

c) Documents in respect of goods or software are accompanied with a declaration by the exporter that they are not more than Rs. 25,000/- in value and not declared on GR/SDF/PP/SOFTEX form.

d) All of the above*

68. Documents evidencing import into India should be preserved by bank for a period of -----from the date of its verification. However, in respect of cases which are under investigation by investigating agencies, the documents may be destroyed only after obtaining clearance from the investigating agency concerned.

a) one year*

b) Six Months

c) 3 months

d) 5 years

69. Contracts involving only ‘one-shot operation’, in case of software exports , the invoice/bill should be raised within ---- days from the date of transmission

a) 180 days

b) one year

c) 15 days*

d) 30 days

70. e-UCP is

a) SUPPLEMENT TO UCPDC FOR ELECTRONIC PRESENTATION*

b) APPLICABLE WHERE CREDIT INDICATES THAT IT IS SUBJECT TO e-UCP

c) Both of the above

d) None of the above

71. Write off in cases of Payment of Claims by ECGC and private insurance companies regulated by Insurance Regulatory and Development Authority (IRDA)

a) Banks may write off the relative export bills and delete them from the XOS statement*

b) RBI permission is required

c) Cannot be deleted from XOS till amount is realized in full

d) None of these

72. As per UCP-600 partial acceptance of an amendment is

a) Allowed at the option of beneficiary

b Allowed at the option of Advising Bank

c) Not allowed*

d) None of these.

73. to a person, irrespective of period of stay, for business travel, or attending a conference or specialized training abroad the entitlement for foreign exchange is –

a) USD 25000*

b) USD 10000

c) USD 100000

d) USD 20000

74. When a bank is prepared to deal in the two ways quoted rates is called as

a) Market maker*

b) Market user

c) Seller and Buyer

d) none of these

75. TDS in case of NRI deposits interest is not to be deducted in

a) NRO saving fund account

b) NRE saving fund account*

c) Both of these

d) None of these

76. Statement on half-yearly basis as at the end of June & December of every year, in form ----- 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

a) BEF*

b) XOS

c) STAT

d) CDF

77. As per UCP-600 In documents other than,----------the description of the goods, services or performance, if stated , may be in General terms not conflicting with their description in the credit

a) The bill of lading

b) The commercial invoice*

c) Bill of Exchange

d) None of these

78. In cases where exporters present documents pertaining to exports after the prescribed period of 21 days from date of export, banks

a) May handle them without prior approval of the Reserve Bank, provided they are satisfied with the reasons for the delay*

b) Return the documents to exporter

c) Seek RBI Approval

d) None of these

79. What is Merchanting Trade?

a) The trade transactions where goods are not touching boarders of the country. Goods are procured by the trader from abroad and exported to third country

b) The trade between merchants of the same country

c) The trade between merchants of the two different countries .*

d) None of these

80. What is relationship of e-UCP AND UCP?

a) A CREDIT SUBJECT TO e-UCP ALSO SUBJECT TO UCP

b) WHERE e- UCP APPLIES , ITS PROVISIONS SHALL PREVAIL TO THE EXTENT THEY PRODUCE DIFFERENT RESULTS.

c) Both of the above*

d) None of the above

81. As per FEMA In merchanting trade, the transactions do not involve foreign exchange outlay for a period exceeding ----

a) three months.*

b) Six Months

c) 12 months

d) one month

82. As per UCP-600 Reimbursing bank charges are on account of

a) Applicant

b) Negotiating Bank

c) Issuing Bank*

d) Reimbursing Bank

83. General permission is available to any resident individual to surrender received / realized / unspent / unused foreign exchange to an Authorised Person within a period of ------ days from the date of receipt / realisation / purchase /acquisition / date of return of the traveller, as the case may be

a) 180 days*

b) 90 days

c) One year

d) none of these

84. COVER RATE: is the rate at which

a) ADs can cover the transaction in the interbank market without making profit or incurring loss

b) Merchants cover the transaction with Ads

c) Both of the above

d) None of the above

85. What is income tax rate in case of NRO Deposits

a) Tax deductible irrespective of type of account and amount of interest, rate 20% in case of foreign remittance and 30% on deposits from local income. Surcharge and education cess extra.*

b) 10% in case PAN number submitted to bank

c) 20% in case PAN number not submitted to bank

d) Income tax is not applicable in case of NRO deposits.

86. As per UCP-600 in transferable letter of credit , letter of credit can be transferred

a) Any number of times

b) Only Once

C) To second beneficiary/ beneficiaries.*

d) Both b& c

87. The duplicate copies of GR/SDF/PP forms and shipping documents, once submitted to the banks for negotiation, collection, etc.,

a) Should not ordinarily be returned to exporters, except for rectification of errors and resubmission*

b) Should be sent to RBI

C) Should be sent to customs for revalidation

d) None of these

88. Under Liberalized Remittance Scheme for Resident Individuals Authorized Dealers may freely allow remittances by resident individuals up to ------per financial year (April-March) for any permitted current or capital account transactions or a combination of both.

a) USD 200,000

b) USD 250000*

C) USD 100000

d) USD 20000

89. After effecting remittances under the license, banks may preserve the copies of utilized license /s till

a) They are verified by the internal auditors or inspectors*

b) One year

c) five years

d) None of these

90. IN CASE OF PAPER PRESENTATION

a) UCP alone shall apply

b) Both UCP and e-UCP shall apply

c) Both of the above*

d) None of the above

91. Supply of goods/ services by Indian exporter to UN agencies for execution of projects in India where payment is realized in foreign currency is called as.

a) Deemed exports*

b) Merchanting trade

c) Domestic supply

d) None of these

92. As per UCP-600, A nominated bank acting on its nomination, a confirming bank, if any, and the issuing bank shall each have a maximum of------- days following the day of presentation to determine if a presentation is complying.

a) 5 days

b) 5 banking days*

c) 7 days

d) 7 banking days

93. Authorized Dealers may accept payment in cash up to Rs. ---- against sale of foreign exchange for travel abroad (for private visit or for any other purpose). Wherever the sale of foreign exchange exceeds the amount equivalent to Rs. ----, the payment must be received only by a crossed cheque Banker’s Cheque / Pay Order / Demand Draft or Debit / credit / prepaid cards

a) Rs.50000*

b) Rs 49999.99

c) Rs 20000

d) Rs 19999.99

94. ---is the lowest price that the buyer is offering for a particular currency at the moment. -----is the highest price acceptable to the seller

a) Bid, Offer

b) Offer, Bid

c) BID, Bid*

d) Offer, Offer

95. Which account can be opened by a foreign national of non-Indian origin visiting India, with funds remitted from outside India through banking channel or by sale of foreign exchange brought by him to India.

a) NRO current account

b) NRO Saving account*

b) Both of the above

c) None of the above

96. NGOs engaged in micro finance activities can raise ECB up to or its equivalent during a financial year. Designated AD bank has to ensure that at the time of drawdown the forex exposure of the borrower is fully hedged

a) USD 5 million

b) USD 1 million

c) USD 10 million*

d) None of these

97. Banks should furnish to the Reserve Bank, on a half-yearly basis, a consolidated statement in Form XOS giving details of all export bills outstanding beyond six months from the date of export as at the end of June and December every year. The statement should be submitted in triplicate within -----days from the close of the relative half-year.

a) 7 days

b) 10 days

c) 15 days*

d) 30 days

98. As per UCP-600 A presentation including one or more original transport document must be made by or on behalf of the beneficiary not later than ------days after the date of shipment

a) 21 calendar days

b) not later than the expiry date of credit

c) Both of these*

d) none of these

99. What are provisions for Interest rates in case of NRE Fixed Deposits?

a) LIBOR / SWAP rates, as on the last working day of the previous month, for US Dollar of corresponding maturities PLUS 175 BASIS POINTS*

b) LIBOR / SWAP rates, as on the last working day of the previous month, for US Dollar of corresponding maturities PLUS 100 BASIS POINTS

c) LIBOR / SWAP rates, as on the last working day of the previous month, for US Dollar of corresponding maturities PLUS 75 BASIS POINTS

d) None of the above.

100. DIRECT QUOTATION means

a) A given number of units of foreign currency per unit of domestic currency e.g. Rs. 100=$2.46

b) A given number of units of domestic currency per unit of foreign currency e.g. $1=Rs. 45.56*

c) Any of the above

d) None of the above

101. What is the maximum amount of Loan against NRE/ FCNR (B) Deposits?

a) Rs. 100 LAC

b) Rs. 500 lac

c) No limit*

d) None of the above

102. Which of these is not correct about FCNR(B) deposits in PNB

a) FCNR (B)) can be opened and maintained by designated branches only.

b) Indian staff posted at Indian Embassy in Pakistan/Bangladesh and their non-resident dependents may open these accounts

c) These accounts can be opened in six currencies*

d) None of the above

103. The Interest on deposits accepted under FCNR (B) scheme shall be paid on the basis of ---- days a year

a) 365 days

b) 366 days

c) 360 days*

d) 365/ 366 days in accordance with leap year.

104. Minimum period for NRE/ FCNR ( B) fixed deposits is

a) 7 days

b) 3months

c) One year*

d) Five years

(all the questions as per RB circular may some incorrect and so read circular and correct your self)

Current Affairs on 19th September 2018

Today's Headlines from www:

 *Economic Times*

📝 Jio adds a record 11.8 million users in July: TRAI

📝 Cognizant buys Advanced Technology Group for undisclosed amount

📝 10-year bond yield rises to 8.14% from 8.10%

📝 Qatar Airways files $69 million loss amid Gulf crisis

📝 UiPath plans to raise headcount to 1200 in India on back of fundraise

📝 SBI to install solar panels over 10,000 ATMs in 2 yrs

📝 LIC yet to seek open offer exemption for IDBI takeover: Sebi

📝 Cargill India's Gemini brand forays into rice bran oil segment

 *Business Standard*

📝 Arun Jaitley bats for blending subsidy with investment to boost farm sector

📝 Flipkart infuses $500 mn ahead of Big Billion Days festive season sale

📝 RCom to exit telecom biz completely, focus on real estate: Anil Ambani

📝 Govt may decide on 4G spectrum allocation to MTNL, BSNL by Dec: Manoj Sinha

📝 Sebi pares IPO listing time to 3 days from 6, clears UPI as payment option

📝 China strikes $60 billion of US goods with tariffs in widening trade war

📝 Morgan Stanley ups September 2019 BSE Sensex target by 17% to 42,000

*Financial Express*

📝 Several cos show interest in Usha Martin’s steel biz

📝 Sebi caps maximum fee for MF schemes, cuts TER

📝 Textile, apparel exports in August up 18% at Rs 21,895 cr

📝 National Pension System: PFRDA caps equity mutual funds investment by NPS

📝 IL&FS Transportation Network to get Rs 425 cr compensation from NHAI

📝 Ayushman Bharat to give fillip to Digital India, says JP Nadda

📝 Govt launches portal for giving security clearance to businesses

*Mint*

📝 Govt penalizes insurers for delay in settling crop insurance claims

📝 Nestle, Unilever, Coke make bids in $4 billion-plus GSK India sale: report

📝 CCI asks Linde and Praxair to sell their India assets before global merger

📝 TPG, ChrysCapital, others in talks to invest up to ₹600 crore in Ess Kay Fincorp

📝 IPPB ties up with Bajaj Allianz to offer life insurance products

📝 Power spot prices plunge on low demand

📝 Sebi approves KYC norms for FPIs, new settlement mechanism

📝 Investors lose ₹2.72 trillion in two days of market fall.

Exposure Norms useful for CAIIB and certified credit professionals

Exposure Norms useful for CAIIB and certified credit professionals   
Exposure Norms are applicable to all scheduled commercial banks, excluding Regional Rural

Banks. These have been prescribed as a prudential measure aimed at better risk management and avoidance of

concentration of credit risks. Exposure Norms have been provided as ceiling on exposure to individuals or Groups;

capital market exposures; unsecured exposure and other related items details of which are given below:



2. Credit Exposures to Individual/Group Borrowers:

a) Ceiling (i) The exposure ceiling limits would be 15 percent of capital funds in case of a single borrower and 40

percent of capital funds in the case of a borrower group. (ii) Credit exposure to a single borrower may exceed the

exposure norm of 15 percent of the bank's capital funds by an additional 5 percent (i.e. up to 20 percent) and credit

exposure to borrowers belonging to a group may exceed the exposure norm of 40 percent of the bank's capital

funds by an additional 10 percent (i.e., up to 50 percent), provided the additional credit exposures are on account of

extension of credit to infrastructure projects. (iii) In addition to the exposure permitted above, banks may, in

exceptional circumstances, with the approval of their Boards, consider enhancement of the exposure to a borrower

(single as well as group) up to a further 5 percent of capital funds subject to the borrower consenting- to the banks

making appropriate disclosures in their Annual Reports. (iv) With effect from May 29, 2008, the exposure limit in

respect of single borrower has been raised to twenty five percent of the capital funds, only in respect of Oil

Companies who have been issued Oil Bonds (which do not have SLR status) by Government of India. In addition to

this, banks may in exceptional circumstances, consider enhancement of the exposure to the Oil Companies up to a

further 5 percent of capital funds. (v) The bank should make appropriate disclosures in the 'Notes on account' to the

annual financial statements in respect of the exposures where the bank had exceeded the prudential exposure

limits during the year pi) The exposure limits will also be applicable to lending under consortium arrangements (vii)

Bills purchased / discounted I negotiated under LC (where the payment to the beneficiary is not made 'under

reserve') will be treated as an exposure on the LC issuing bank and not on the borrower. In the case of negotiations

' under reserve' the exposure should be treated as on the borrower.

(b) Exposures to NBFCs : The exposure (both lending and investment, including off balance sheet exposures) of

a bank to a single NBFC / NBFC-AFC (Asset Financing Companies) should not exceed 10% / 15% respectively, of

the bank's capital funds as per its last audited balance sheet. Banks may, however, assume exposures on a single

NBFC / NBFC-AFC up to 15%120%respectively, of their capital funds provided the exposure in excess of 10%/15%

respectively, is on account of funds on-lent by the NBFC / NBFC-AFC to the infrastructure sector. Further, banksmay

also consider fixing internal limits for their aggregate exposure to all NBFCs put together. Infusion of capital funds

after the published balance sheet date may-also be taken into account for the purpose of reckoning capital funds.

Banks should obtain an external auditor's certificate on completion of the augmentation of capital and submit the

same to the Reserve Bank of India (Department of Banking Supervision) before reckoning the additions to capital

funds.

(c) Exemptions: Following types of credit will not be reckoned for exposure norms: (i) Existing/additional credit

facilities (including funding of interest and irregularities) granted to weak/sick industrial units under rehabilitation

packages. (ii) Food credit: Borrowers, to whom limits are allocated directly by the Reserve Bank for food credit, will

be exempt from the ceiling. (iii) Where principal and interest are fully guaranteed by the Government of India (iv)

Loans and advances (both funded and non-funded facilities) granted against the security of a bank's own term

deposits to the extent that the bank has a specific lien on such deposits. (v) Exposure on NABARD; However, there

is no exemption from the prohibitions relating to investments in unrated non-SLR securities. Definitions: For the

purpose of exposure norms, exposure, capital fund, Group and Infrastructure have been defined as under:

(d) Exposure: (a) Exposure shall include credit exposure (funded and non-funded credit limits) and investment

exposure (including underwriting and similar commitments). The sanctioned limits or outstandings, whichever are

higher, shall be reckoned for arriving at the exposure limit. However, in the case of fully drawn term loans, where there

is no scope for re-drawal of any portion of the sanctioned limit, banks may reckon the outstanding as the exposure. (b)

Credit exposure comprises of the following elements (i) all types of funded and non-funded credit limits. (ii) facilities

extended by way of equipment leasing, hire purchase finance and factoring services. (c) Investment exposure

comprises of the following elements: (i)investments in shares and debentures of companies (ii)investment in PSU

bonds (c)investments in Commercial Papers (CPs). (d) Banks' I Fls' investments in debentures/ bonds / security

receipts / pass-through certificates (PTCs) issued by a SC / RC as compensation consequent upon sale of financial

assets will constitute exposure on the SC I RC. In view of the extraordinary nature of the event, banks / Fls will be

allowed, in the initial years, to exceed the prudential exposure ceiling on a case-to-case basis. (e) The investment

made by the banks in bonds and debentures of corporates which are guaranteed by a Public Financial Institutions

(PFI) (as per list given by RBI) will be treated as an exposure by the bank on the PFI and not on the corporate. (f)

Guarantees issued by the PFI to the bonds of corporates will be treated as an exposure by the PFI to the corporates to

the extent of 50 percent, being a non-fund facility, whereas the exposure of the bank on the PFI guaranteeing the

corporate bond will be 100 percent. The PFI before guaranteeing the bonds/debentures should, however, take

into account the overall exposure of the guaranteed unit to the financial system.

(e) Capital Funds: Capital funds for the purpose will comprise of Tier I and Tier II capital as defined under

capital adequacy standards and as per the published accounts as on March 31 of the previous year.

However, the 'infusion of capital under Tier I and Tier II, either through domestic or overseas issue (in the

case of branches of foreign banks operating in India, capital funds received by them from their Head

Office), after the published balance sheet date will also be taken into account for determining the exposure

ceiling. Other accretions to capital funds by way of quarterly profits etc. would not be eligible to be reckoned

for determining the exposure ceiling. Banks are also prohibited from taking exposure in excess of the ceiling

in anticipation of infusion of capital at a future date.

(p Group: (a) The concept of 'Group' and the task of identification of the borrowers belonging to specific

industrial groups is left to the perception of the banks/financial institutions. However, the guiding principle

will be commonality of management and effective control. In so far as public sector undertakings are

concerned, only single borrower exposure limit would be applicable. (b) In the case of a split in the group, if

the split is formalized, the splinter groups will be regarded as separate groups. If banks and financial

institutions have doubts about the bona fides of the split, a reference may be made to RBI for its final view

in the matter to preclude the possibility of a split being engineered in order to prevent coverage under the

Group Approach.

KVIC

Khadi and Village Industries Commission (KVIC)
The Khadi and Village Industries Commission (KVIC) is a statutory body established by an Act of
Parliament (No. 61 of 1956, as amended by act no. 12 of 1987 and Act No.10 of 2006. In April 1957,
it took over the work of former All India Khadi and Village Industries Board.
Objectives
The broad objectives that the KVIC has set before it are:
• The social objective of providing employment.
• The economic objective of producing saleable articles.
• The wider objective of creating self-reliance amongst the poor and building up of a strong
rural community spirit.Major Functions
The KVIC is charged with the planning, promotion, organisation and implementation of programs for
the development of Khadi and other village industries in the rural areas in coordination with other
agencies engaged in rural development wherever necessary.
• Its functions comprise building up of a reserve of raw materials and implements for supply
to producers, creation of common service facilities for processing of raw materials as semi-
finished goods and provisions of facilities for marketing of KVI products apart from
organisation of training of artisans engaged in these industries and encouragement of co-
operative efforts amongst them.
• It promotes the sale and marketing of khadi and/or products of village industries or
handicrafts, the KVIC may forge linkages with established marketing agencies wherever
feasible and necessary.
• KVIC is also charged with the responsibility of encouraging and promoting research in the
production techniques and equipment employed in the Khadi and Village Industries sector
and providing facilities for the study of the problems relating to it, including the use of non-
conventional energy and electric power with a view to increasing productivity, eliminating
drudgery and otherwise enhancing their competitive capacity and arranging for dissemination
of salient results obtained from such research.
• KVIC is entrusted with the task of providing financial assistance to institutions and individuals
for development and operation of Khadi and village industries and guiding them through
supply of designs, prototypes and other technical information. In implementing KVI activities,
the KVIC may take such steps as to ensure genuineness of the products and to set standards
of quality and ensure that the products of Khadi and village industries do conform to the
standards.
• KVIC may also undertake directly or through other agencies studies concerning the problems
of Khadi and/or village industries besides research or establishing pilot projects for the
development of Khadi and village industries.
• KVIC is authorized to establish and maintain separate organisations for the purpose of
carrying out any or all of the above matters besides carrying out any other matters incidental
to its activities.

Parliament passes Prevention of Corruption (Amendment) Bill, 2018

Parliament passes Prevention of Corruption (Amendment) Bill, 2018.
21 Jul '18

After a raging 12-hour debate on
20th July 2018, the Narendra
Modi-led NDA government
defeated the no-confidence motion in
the Lok Sabha by 199 votes. While
126 members supported the motion,
325 MPs rejected it. The day-long
session in the Lower House saw the
government and the Opposition trade
charges and a moment of drama when
Congress president Rahul Gandhi, after
a blistering speech, walk over to Prime
Minister and embrace him in a hug.
This no-confidence motion, was the
27th in Parliamentary history, and the
first to be admitted in 15 years. The last
was in 2003 when the Congress party
moved a no-confidence motion against
prime minister Atal Bihari Vajpayee.
What is no-confidence motion:
In a parliamentary democracy, a
government can be in power only if it
commands a majority in the directly
elected House. Article 75(3) of our
Constitution embodies this rule by
specifying that the Council of Ministers
are collectively responsible to Lok
Sabha. The rules of Lok Sabha provide
a mechanism for testing this collective
responsibility. They allow any Lok
Sabha MP who can garner the support
of 50 colleagues, to introduce a motion
of no-confidence against the Council of
Ministers. Thereafter, a discussion on the
motion takes place. MPs who support
the motion highlight the government’s
shortcomings, and the Treasury Benches
respond to the issues they raise.
Historical Background:
In 1952, the Rules of Lok Sabha provided
that a no-confidence motion could be
moved with the support of 30 MPs.
Not a single no-confidence motion was
moved during the term of the first two
Lok Sabhas.
It was in 1963 (third Lok Sabha) that
the first one was moved by Acharya
J B Kripalani against the government
headed by Prime Minister Jawaharlal
Nehru. The debate on the motion
lasted for 21 hours over four days,
with 40 MPs participating.
The next no-confidence motion was
moved roughly a year later in 1964 by N
C Chatterjee, an Independent MP, against
Prime Minister Lal Bahadur Shastri.
From 1964-75, Lok Sabha debated 15
no-confidence motions. Three were
against Shastri and 12 against Indira
Gandhi.
Indira Gandhi faced three more no-
confidence motions between 1981 and
1982, none of them were successful in
dislodging a government.
Defeated motions:
The first no-confidence motion that
led to the falling of a government was
moved by Y B Chavan in 1979 against
the government of Prime Minister
Morarji Desai. After a nine-hour
debate spread over two days, Desai
resigned before the motion could be
put to vote.
Since then, every Prime Minister has
been able to defeat a no-confidence
motion. Rajiv Gandhi faced one
in 1987 which he defeated by a
simple voice vote because of his
overwhelming majority in Lok Sabha.
P V Narasimha Rao had two close no-
confidence motions during his term in
the 10th Lok Sabha. The first motion
against him was moved by Jaswant
Singh, which he defeated with a
margin of 46 votes. Rao did not face
any trouble in defeating the second
one, moved by Atal Bihari Vajpayee.
The third no-confidence motion that
Rao defeated with a margin of 14
votes was marred by controversy.
Jharkhand Mukti Morcha MPs were
taken to court for
having accepted
bribes to cast their
vote to defeat the
motion.
The Parliament on July 24, 2018 passed the Prevention
of Corruption (Amendment) Bill 2018 to enhance
transparency and accountability of the government.
The Bill amends various provisions of Prevention of
Corruption Act (PCA), 1988.
Provisions of the Bill
# The Bill introduces the offence of giving a bribe as a direct
offence. However, a person who is compelled to give a
bribe will not be charged with the offence, if he reports the
matter to law enforcement authorities within seven days.
# The Bill makes specific provisions related to giving
a bribe to a public servant, and giving a bribe by a
commercial organisationIt does not cover circumstances where the public official:
(i) uses illegal means,
(ii) abuses his position, or
(iii) disregards public interest and obtains a valuable
thing or reward for himself or another person.
# The Bill modifies the definitions and penalties for
offences related to taking a bribe, being a habitual
offender and abetting an offence.
# It introduces the powers and procedures for the
attachment and forfeiture of property of public servants
accused of corruption.
# The Bill adds the provision for prior sanction to
prosecute former officials. The Act only provided for
the prior sanction to prosecute serving public officials.
# It deletes the provision that protects a bribe giver from
prosecution, for any statement made by him during a
corruption trial. This may prevent bribe givers from
appearing as witnesses in court.
# Under the Act, a person is proven guilty for the offences
of taking a bribe, being a habitual offender or abetting
an offence. The Bill amends this provision to only
cover the offence of taking a bribe.
# It provides more stringent punishment for the offences
of bribery, both for the bribe giver and the bribe taker

 The Bill redefines criminal misconduct to only cover
misappropriation of property and possession of
disproportionate assets.

Financial awareness September 2018

According to Asian Development Bank (ADB), India's
Gross Domestic Product Growth Rate is expected to
______ in the Financial Year 2018-19. In which City,
Fourth BIMSTEC Summit will be held?
w 7.30%
# According to International Monetary Fund (IMF),
India's Gross Domestic Product Growth Rate is
expected to _______ in the Financial Year 2018-19.
w 7.3%
# Finance Ministry has approved infusion of ________
crore in 5 PSBs. w Rs 11,336

# Fourth AIIB Annual Meeting will be held in _______
in July 2019. w Luxembourg
# Government has constituted a committee for
standardisation and indigenisation of metro rail
system across the country. Who is the chairman of this
committee? w E Sreedharan
# Government has set up a highlevel task force to suggest
ways of reducing import dependence. Who will head
this task force? w P K Sinha
# In which city, First meeting of the task force on
e-commerce was held? w New Delhi
# In which city, NITI Aayog is organizing 'MOVE:
Global Mobility Sumit'? w New Delhi
# Income Tax Department has launched an 'instant'
Aadhaarbased PAN allotment service for individuals
seeking the unique identity for the first time. Which is
eligible for ePAN facility? w Resident Individuals
# India has become the ______member of the European
Bank for Reconstruction and Development (EBRD).
w 69th
# India has moved up to ______ place in terms of money
parked by its citizens and companies with Swiss
Banks. w 73rd
# Indian Army and _________have signed Memorandum
of Understanding (MoU) on the Defence Salary
Package. w SBI
# RBI has imposed a penalty of ________Crore on
Tamilnad Mercantile Bank for contravention of Master
Directions on Issue and Pricing of Shares.
w 6 Crore
# RBI to Issue New Design Rs. 100 Denomination
Banknote. What will be the Dimension of the
banknote? w 66 mm × 142 mm
# To which Bank, RBI has issued license to launch
operations in India? w Bank of China

Dena-BOB-Vijaya Merger details:

Total Branches:

BOB- 5538
Vijaya- 2031
Dena- 1874
Post merger- 9443

Business Mix:
BOB- 10.3 Lakh Crore
Vijaya- 2.8 Lakh Crore
Dena- 1.7 Lakh Crore
Post Merger- 14.8 Lakh Crore

• 
  

CASA Ratio:
BOB- 35.5%
Vijaya- 24.9%
Dena- 39.8%
Post merger- 34%

Deposits:

BOB- 5.8 Lakh Crore
Vijaya- 1.6 Lakh Crore
Dena- 1 Lakh Crore
Post Merger- 8.4 Lakh Crore

Merger may take 4-6 months

Net NPA post merger- 5.71%

Name of banks to be changed post merger.

Source- CNBC Awaaz

Working capital

WORKING CAPITAL



Working capital, also known as net working capital, is the difference between a company’s current assets, like cash, accounts receivable (customers’ unpaid bills) and inventories of raw materials and finished goods, and current liabilities, like accounts payable.

Working Capital = Current Assets - Current Liabilities



The objective of running any industry is earning profits. An industry will require funds to

acquire “fixed assets” like land, building, plant, machinery, equipments, vehicles, tools etc.,

and also to run the business i.e. its day to day operations.

Funds required for day to-day working will be to finance production and sales. For

production, funds are needed for purchase of raw materials/stores/fuel, for employment of

labour, for power charges etc., for storing finished goods till they are sold out and for

financing the sales by way of sundry debtors/ receivables.

Capital or funds required for an industry can therefore be bifurcated as fixed capital and

working capital. Working capital in this context is the excess of current assets over current

liabilities. Current assets are those assets that in the ordinary course of business will be

converted into cash within a brief period (during the operating cycle of the industry and

normally not exceeding one year) without undergoing diminution in value and without

disrupting the operation. Current liabilities are those liabilities intended at their inception, to

be paid in the ordinary course of business within a reasonably short time (normally within a

year) out of the current assets or the income of the business. The above definition of

working capital, however, takes into account only the funds available to the industry from

long term sources like capital and long term borrowings, after meeting the expenses

towards fixed and other non-current assets. It does not represent the total funds required

by the industry for working capital to sustain its level of operations.

The excess of current assets over current liabilities is treated as net working capital or

liquid surplus and represents that portion of the working capital which has been provided

from the long term source. This can be explained by the following diagram.







Working Capital Assessment :

Concept of Working Capital: Working capital denotes the amount of funds needed for

meeting day-to-day operations of a concern.

This is related to short-term assets and short-term sources of financing. Hence it deals

with both, assets and liabilities

There are two concepts or senses used for working capital.

1. Gross Working Capital: The concept of gross working capital refers to the total

value of current assets. In other words, gross working capital is the total amount

available for financing of current assets. However, it does not reveal the true financial

position of an enterprise. How? A borrowing will increase current assets and, thus, will

increase gross working capital but, at the same time, it will increase current liabilities

also.

As a result, the net working capital will remain the same. This concept is usually

supported by the business community as it raises their assets (current) and is in their

advantage to borrow the funds from external sources such as banks and the financial

institutions.

In this sense, the working capital is a financial concept. As per this concept:

Gross Working Capital = Total Current Assets

2. Net working Capital: The net working capital is an accounting concept which

represents the excess of current assets over current liabilities. Current assets consist of

items such as cash, bank balance, stock, debtors, bills receivables, etc. and current

liabilities include items such as bills payables, creditors, etc. Excess of current assets

over current liabilities, thus, indicates the liquid position of an enterprise.

The ratio of 2:1 between current assets and current liabilities is considered as optimum

or sound. What this ratio implies is that the firm/ enterprise have sufficient liquidity to

meet operating expenses and current liabilities. It is important to mention that net

working capital will not increase with every increase in gross working capital.

Importantly, net working capital will increase only when there is increase in current

assets without corresponding increase in current liabilities.



Working Capital Gap :

Is defined as current assets minus current liabilities excluding bank borrowings. Current

assets will be taken at estimated values or values as per the tendon committee norms,

whichever is lower. Current assets will consist of inventory and receivables, referred as

chargeable current assets (CCA) and other current assets (OCA).

Maximum permissible bank finance (MPBF) in view of the above approach to bank



lending, the Tandon committee suggested the following three methods of determining

the permissible level of bank borrowings:

1. First method:- in the first method, the borrower will contribute 25 per cent of the

working capital gap; the remaining 75 per cent be financed from bank borrowings this

method will give a minimum current ratio of

2. Second method:- in the second method, the borrower will contribute 25 per cent of

the total current assets. The remaining of the working capital gap (the working capital

gap less the borrower‘s contribution) can be bridged from the bank borrowings. This

method will give a current ratio of .

3. Third method:- in the third method, borrower will contribute 100 percent of core

assets, as defined and 25 per cent of the balance of current assets. The remaining of

the working capital gap can be met from the borrowings. This method will further

strengthen the current ratio

Components of Working Capital: Three main components associated with

working capital management:

1. Accounts Receivable

Accounts receivable are revenues due – what is owed to a company by its customers

for sales made. Timely, efficient collection of accounts receivable is essential to a

company's smooth financial operation.

Accounts receivable are listed as assets on a company's balance sheet, but they are

not actually assets until they are collected. A common metric analysts use to assess a

company's handling of accounts receivable is days sales outstanding, which reveals the

average number of days a company takes to collect sales revenues.

2. Accounts Payable

Accounts payable, the money that a company is obligated to pay out over the short

term, is also a key component of working capital management. Companies seek to

strike a balance between maintaining maximum cash flow by delaying payments as long

as is reasonably possible and the need to maintain positive credit ratings while

sustaining good relationships with suppliers and creditors. Ideally, a company's average

time to collect receivables is significantly shorter than its average time to settle

payables.

3. Inventory

Inventory is a company's primary asset that it converts into sales revenues. The rate at

which a company sells and replenishes its inventory is an important measure of its

success.

Investors consider the inventory turnover rate to be an indication of the strength of sales

and as a measure of how efficient the company is in its purchasing and manufacturing

process. Inventory that is too low puts the company in danger of losing out on sales, but

excessively high inventory levels represent wasteful, inefficient use of working capital.

Source of Working Capital:

SPONTANEOUS (URGENT) SOURCES OF WORKING

CAPITAL FINANCE

The word ‗spontaneous‘ itself explains that this source of working capital is readily or

easily available to the business in the normal course of business affairs. The quantum

and terms of this credit depend on the industry norms and the relationship between

buyer and seller. These sources include trade credit allowed by the sundry creditors,

credit from employees, and other trade-related credits. The biggest benefit of

spontaneous sources as working capital is its ‗effortless raising‘ and ‗insignificant cost‘

compared to traditional ways of financing.

List of spontaneous sources of working capital

TRADE CREDIT

SUNDRY CREDITORS

BILLS PAYABLE

NOTES PAYABLE

ACCRUED EXPENSES

The cost factor and the quantum depends a lot on the terms of such credit viz.

maximum credit limit, the period of credit, and discount on cash payment. Each supplier

will have a maximum credit limit defined for the buyer depending on the business

capacity and creditworthiness of the buyer. Similarly, the credit period is defined say 30

days, 45 days etc. Discount on cash payment is allowed to the buyer if the payment

immediately on buying the materials. This percentage of discount is an opportunity cost

for the buyer.

SHORT TERM SOURCES OF WORKING CAPITAL FINANCE

Short term sources can be further divided into internal and external sources of working

capital finance. The

Short-term Internal Sources

TAX PROVISIONS

DIVIDEND PROVISIONS

Short-term External Sources

Short-term working capital financing from banks such as

BANK OVERDRAFTS,

CASH CREDITS,

TRADE DEPOSITS,

BILLS DISCOUNTING,

SHORT-TERM LOANS OR WORKING CAPITAL LOANS,

INTER-CORPORATE LOANS,

COMMERCIAL PAPER, ETC.

Tax and dividend provisions are current liabilities and cannot be delayed. The fund that

would have been used in paying these provisions act as working capital till the point

these are not paid.

Short-term working capital finance availed from banks and financial institutions are

costly compared to spontaneous and long-term sources in terms of rate of interest but

have a great time flexibility. Due to time flexibility, the finance manager can use the

funds and pay interest on the money which his business utilizes and can pay them

anytime when cash is available. Overall, in comparison to long-term sources where you

have to hold funds even when not required, these facilities prove cheaper.

LONG-TERM SOURCES OF WORKING CAPITAL FINANCING

Long-term sources can also be divided into internal and external sources. Long-term

internal sources of finance are retained profits and provision for depreciation whereas

external sources are Share Capital, long-term loan, and debentures.

Long-term Internal Sources

RETAINED PROFITS

PROVISION FOR DEPRECIATION

Long-term External Sources

SHARE CAPITAL

LONG-TERM LOAN

DEBENTURES

Retained profits and accumulated depreciation are as good as funds available to the

business without any explicit cost. These are the funds completely earned and owned

by the business itself. They are utilized for expansion as well as working capital finance.

Long-term external sources of finance like share capital is a cheaper source of finance

but are not commonly used for working capital finance.

Working capital can be classified as temporary working capital and permanent working

capital. It is advisable to use long-term sources for permanent and short-term sources

for temporary working capital requirements. This will optimize the working capital cost

and enforce good working capital management practices.



Various Methods of Assessment of Working Capital:

• Operating Cycle Method

• Drawing Power Method.

• Turnover Method.

• MPBF method (II method of lending) for limits of Rs 6.00 crores and above

• Cash Budget method - A cash budget is an estimation of the cash inflows and

outflows for a business over a specific period of time, and this budget is used to

assess whether the entity has sufficient cash to operate. Companies use sales

and production forecasts to create a cash budget, along with assumptions about

necessary spending and accounts receivable. If a company does not have

enough liquidity to operate, it must raise more capital by issuing stock or by

taking on debt.

Under this method, monthly cash inflow and outflow statement is prepared and

the highest gap between the two becomes the basis for sanction of credit limit.

Banks make use of cash budget method in case of seasonal industries, software

development, services sector activities including construction activity, etc.

Based on procurement and cash inflow) . It is mainly used for Seasonal

Industries (Sugar/ Rice Mills/Textiles/Tea/Tobacco/Fertilizers) Contractors &

Real Estate Developers , Educational Institutions, etc.



 Operating Cycle :



 Any manufacturing activity is characterized by a cycle of operations consisting of

purchase of raw materials for cash, converting these into finished goods and realising

cash by sale of these finished goods.

 Diagrammatically, the operating cycle is represented as under'













The time that lapses between cash outlay and cash realisation by sale of finished

goods and realisation of sundry debtors is known as the length of the operating cycle.



That is, the operating cycle consists of:

a. Time taken to acquire raw materials and average period for which they are in

store.

b. Conversion process time

c. Average period for which finished goods are in store and

d. Average collection period of receivables (Sundry Debtors)



 Operating Cycle is also called the cash-to-cash cycle and indicates how cash is

converted into raw materials, stocks in process, finished goods, bills(receivables) and

finally back to cash. Working capital is the total cash that is circulating in this cycle.

Theref





Traditional Method of Assessment of Working Capital Requirement



The operating cycle concept serves to identify the areas requiring improvement for the

purpose of control and performance review. But, as bankers, we require a more detailed

analysis to assess the various components of working capital requirement viz., finance for

stocks, bills etc.

Bankers provide working capital finance for holding an acceptable level of current assets, viz.

raw materials, stocks-in-process, finished goods and sundry debtors for achieving a

predetermined level of production and sales. Quantification of these funds required to be

blocked in each of these items of current assets at any time will, therefore provide a measure of

the working capital requirement (WCR) of an industry.



Raw Materials: Any industrial unit has to necessarily stock a minimum quantum of

materials used in its production to ensure uninterrupted production. Factors which affect or

influence the funds requirement for holding raw materials are



i. Average consumption of raw materials.

ii. Their availability - locally or from places outside, easy availability / scarcity, number of

sources of supply.

iii. Time taken to procure raw materials (procurement time or lead time)

iv. Imported or indigenous.

v. Minimum quantity supplied by the market (Minimum Order Quantity (MOQ)).

vi. Cost of holding stocks (e.g. insurance, storage, interest)

vii. Criticality of the item.

viii. Transport and other charges (Economic Order Quantity (EOQ)).

ix. Availability on credit or against advance payment in cash

x. Seasonality of the materials.

This raw material requirement is generally expressed as so many months’

requirement (consumption).



 Stocks-in-process : Barring a few exceptional types of industries, when the raw materials

get converted into finished products within a few hours, there is normally a time lag or

delay or period of processing only after which the raw materials get converted into finished

product. During this period of processing, the raw materials are being processed and

expenses are being incurred. The period of processing may vary from a few hours to a

number of months and unit will be blocking working funds in the stocks-in-process during

this period. Such funds blocked in SIP depend on:

i. The processing time

ii. Number of products handled at a time in the process

iii. Average quantities of each product, processed at each time. (batch quantity)

iv. The process technology adopted

v. Number of shifts

A rough and ready formula for computing the requirement of funds is to find out the cost of

production for the period of processing. viz. (raw materials consumed per month +

expenses per month) x period of processing in months.



Finished goods: All products manufactured by an industry are not sold immediately. It will

be necessary to stock certain amount of goods pending sale. This stocking depends on:

i. Whether the manufacture is against firm order or against anticipated order

ii. Supply terms

iii. Minimum quantity that can be despatched

iv. Transport availability and transport cost

v. Pre-despatch Inspection

vi. Seasonality of goods

vii. Variation in demand

viii. Peak level/ low level of operations

ix. Marketing arrangement - e.g. direct sale to consumers or through dealers

(wholesalers).

The requirement of funds against finished goods is expressed as so many months’ cost of

production.

















Sundry Debtors (Receivables) :

Sales may be effected under three different methods:

a. Against Advance Payment

b. Against Cash

c. On Credit

In the case of (a) no funds are blocked up. Instead it helps in meeting the working capital needs.

In case of Cash Sales (b) no funds are blocked up and hence there is no need for additional

working capital requirement. It is in the case of (c) credit sales that working funds are required to

meet delays in sales realisation. The entire sales of the industry will not be on cash basis. In fact

a major portion will be on credit. A unit grants trade credit because it expects this investment to

be profitable. It would be in the form of sales expansion and fresh customers or it could be in the

form of retention of existing customers. The extent of credit given by the industry normally

depends upon:

i. Trade Practices

ii. Market conditions

iii. Whether it is a bulk purchase by the buyer.

iv. Seasonality (e.g. rain coats, woolen products).

v. Price advantage.

Even in cases where no credit is extended to buyers, the transit time for the goods to reach the

buyer may take some time and till the cash is received back, the unit will have to be out of

funds. The period from the time of sale to the receipt of funds will have to be reckoned for the

purpose of quantifying the funds blocked in Sundry Debtors. Even through the amount of Sundry

Debtors according to the unit’s books will be on the basis of Sale price, the actual amount

blocked will be only the cost of production of the materials against which credit has been

extended - the difference being the unit’s profit margin - (which the unit does not obviously have

to spend).

The working capital requirement against Sundry Debtors will therefore be computed on the

basis of cost of production (whereas the permissible Bank Finance will be computed on the

basis of sale value since profit margin varies from product to product and buyer to buyer and

cannot be uniformly segregated from the sale value).

The working capital requirement is normally expressed as so many months’ cost of production.



 Expenses : It is customary in assessing the working capital requirement of industries, to

provide for one month’s expenses also. A question might be raised as to why expenses

should be taken separately, whereas at every stage the funds required to be blocked had

been taken into account. This amount is provided merely as a cushion, to take care of

temporary bottlenecks and to enable the unit to meet expenses when they fall due.

Normally one month total expenses, direct and indirect, salaries etc. are taken into

account. In cases where the operating cycle is very short say one month or 2 months the

provision for expenses can be reduced. Similarly, where the operating cycle is very long,

say 12 months or more, the provision for expenses may have to be increased, to take care

of contingencies.

While computing the working capital requirements of a unit, it will be necessary to take into

account two other factors, one is the credit received on purchases. Trade Credit is a

normal practice in trading circles. The period of such credit will vary from place to place,

material to material and person to person. The amount of credit received on purchases

reduces the working capital funds required by the unit. Secondly, industries often receive

advance against orders placed for their products.



necessarily give advance to producers e.g. Custom-made machinery. Such funds are used

for the working capital of an industry. It can thus be summarised as follows:

1. Raw Materials Months requirements Rs. A

2. Stocks-in- Process Months (Cost of Rs. B

(for Period of Processing) Production)

3. Finished Goods Months cost of Rs. C

production required

to be stocked

4. Sundry Debtors Months cost of production Rs. D

(outstanding credits)

5. Expenses One month(say) Rs. E

------------------

A+B+C+D+E

-------------------

Less: Credit received on purchases - Rs. F

(Months’ Purchases value)

Advance payment on order received - Rs.G

Working Capital Required (H) = (A+B+C+D+E) - (F+G)

The purpose of assessing the W/C requirement of the industry is to determine how the total

requirements of funds will be met. The two sources for meeting these requirements are the

unit’s long term sources (like capital and long term borrowings) and the short term borrowings

from banks



Drawing Power (DP) Method :

(for units with small limits)

Drawing power is arrived at on the basis of valuation of current assets charged to the

bank in the shape of hypothecation and assignment , after deducting the stipulated

margin

Illustration:

Paid stock – 4 Margin 25% - DP = 3

Semi-finished goods – 4 Margin 50% - DP=2

Finished goods -4 Margin 25% - DP = 3

Book Debts – 4 Margin 50% - DP = 2

Total DP= 10



Turnover Method :



(originally suggested by Nayak Committee for SSI units)

The WC requirements may be worked out on the basis of Naik Committee

recommendations for working capital limit upto Rs.6 crores from the banking system, on

the basis of minimum of 20% of their projected annual turnover for new as well as

existing units, beyond which WC be computed on the basis of WC cycle, after fixing

stipulated margins , on each component of the WC. In case of borrowers desiring

facilities under Naik Committee recommendations and having a WC cycle of more than

3 months in a year, the WC requirements will be funded after assessing his

requirements on the basis of his WC cycle, after fixing proper margins.

Example:

Applicable for limits upto Rs.6 crores



(a) Projected sales = Rs. 10,00,000

(b) Working capital requirements: 25% of projected sales i.e. Rs.2,50,000

(c) Margin (contribution of Owner) : 5% of projected sales i.e. Rs.50,000

(d) Working capital to be funded by bank : Rs.2,00,000





MPBF Method

(Tandon‘s II method of lending)





Tandon Committee also recommended inventory/ receivable norms for 22 major industries.



 Approach to lending

Regarding approach to lending, the Committee suggested three methods for assessment of

working capital requirements.

FIRST METHOD

The quantum of bank’s short-term advances will be restricted to 75% of working capital gap

where “working capital gap” is equal to “Current Assets” minus “Current Liabilities Other Than

Bank Borrowings”. Remaining 25% is to be met from long-term sources (Net Working Capital)

SECOND METHOD

Net Working Capital should at least be equal to 25% of total value of acceptable level of current

assets. The remaining 75% should first be financed by Other Current Liabilities (OCL) and the

bank may finance balance of the requirements.

THIRD METHOD

The borrower should provide for entire core current assets and 25% balance current assets from

the Net Working Capital.

To compute the level of working capital requirement of the unit, the analyst has to assess the

level of current assets it has to carry, consistent with its projected level of production and sales.

Inventory and receivables constitute most of the current assets. On the basis of the Committee

report, RBI gave inventory norms and advised the banks to decide the levels of inventory and

receivables taking into account, production, processing cycles and other relevant factors



• Working capital gap : Current assets – current liabilities (other than bank

borrowings)

• Minimum stipulated net working capital= 25% of current assets (excluding

exports receivables)

• Actual projected NWC









Cash budget method::



Assessment of working capital



The assessment of working capital is done through the Projected Balance Sheet

Method (PBS), Cash Budget method or Turnover Method.



 Under the PBS method, the fund requirements computed on the basis of borrower’s

projected balance sheet, the funds flow planned for the current/ following year

and examination of the profitability, financial parameters. etc. The key determinants for

the limit can, inter-alia, be the extent of financing support required by the

borrower and the acceptability of the borrower’s overall financial position including

the projected level of liquidity. The projected Bank borrowing thus arrived at, is

termed as ‘Assessed bank Finance’ (ABF). This method is applicable for borrowers

who are engaged in manufacturing, services and trading activities and who require

fund bases working capital (WC) finance of above Rs. 5 crores.



Cash budget method is used for assessing working capital finance for seasonal

industries like sugar, tea and construction activity. This method is also used for sanction

of ad-hoc WC limits. In these cases, the required finance is quantified from the

projected cash flows and not from the projected values of current assets and current

liabilities. Other aspects of assessment like examination of funds flow, profitability,

financial parameters, etc, are also carried out







.



Collection of financial data



CMA DATA

Introduction:   Credit Monitoring Arrangement (CMA) data is a very important area to understand a person who deals with finance in an organization. This is a critical analysis of current and projected financial statements of a loan applicant by the banker. Data CMA is a systematic analysis of working capital management of the borrower and the purpose of this statement is to ensure the use of long-term and short-term funds have been used . for the particular purpose . In this article I want to discuss the content database CMA CMA Basically contains data that, following the seven states.

1. particular existing and proposed limits:   It is the first statement in the CMA data that contains this fund and fund based limits of non-borrower credit limits and their use and history. With the current limitations of funds, which is the limit proposed or the borrower will be mentioned in this statement is a basic document information provided by the borrower, the banker.



2. operating Declaration:  This is the second statement provided by the borrower, it indicates that the business plan of the borrower gives the current sales, direct and indirect costs, pre-and after tax, as well as projections of sales, expenses and profit situation for 3-5 years based on the borrower's working capital demand. This statement is a scientific analysis of the capacity of production and financial current and projected income of the borrower.



3. analysis of balance:  balance sheet analysis for current and projected statement is the third in the CMA data. This statement gives a detailed analysis of current and non-current assets, fixed assets, cash and bank, the current position and long-term debt of the borrower. Moreover, this declaration indicates the position of the net worth of the borrower for the projected years. budget analysis gives a complete financial situation of the borrower and the generating capacity cash over the planned exercises.



4. Comparative table of current assets and liabilities:   . Fourth statement which gives a comparative analysis of current assets and current liabilities of the borrower movement This basically decides the cycle capital of actual work for the projection period and ability of the borrower to meet their working capital needs.



5. Calculate MPBF:  This is a very important statement and calculation that indicates the  M Aximum  P ermissible B ank  F inance. This statement, which calculates the borrower working capital GAP and finance eligible in two methods loan, the first method of loan will enable MPBF 75% of the work GAP net capital is Current assets less current liabilities, Second method loan will enable MPBF 75% of current assets less current liabilities. As limit MPBF is the credit component of cash the borrower generally known drawing power (DP Limit). So it is very important statement that decide the borrower `s borrowing limit of the bank.



6. fund cash flow:  cash flow analysis statement for the current period and projected is one of the states in the CMA data. fund this position analysis of the borrower's account with reference to the analysis of capital given in the calculations MPBF and projected balance sheets. Objective basis of this statement capture the movement of funds to the borrower for the period.



. 7 Ratio Analysis:  This is the last statement that gives the key ratios for the bank on the basis of data from the AMC prepared and presented to the bank financing. Ratios basic gross margin rate net margin, current ratio, limit DP MPBF, net worth, the ratio of the net value of liabilities, the liquidity ratio, inventory turnover, asset turnover, fixed asset turnover, the number of current business assets, working capital turnover, Debt Equity ratio etc.





For working capital assessment, the required financial data are obtained from the borrower

in the following forms:

Form I : Particulars of existing / proposed limits from the banking system

Form II : Operating statement

Form Ill : Analysis of balance sheet

Form IV : Comparative Statement of CA / CL,

Form VI: Funds flows statement.

Form VII: Statement showing the total cost of the project and sources  of finance



Information provided in the Forms II, III. IV, and VI serves the detailed financial analysis. In

Form I, in addition to information relating to working capital and term loan borrowings

(existing and proposed) information regarding borrowings from NBFCs, borrowings from

term leading institutions for WC purposes, Inter Corporate Deposits taken, lease finance

availed will also be collected..





Working capital:  Numerical

A newly formed company has applied to the Commercial Bank for the first time for financing its

working capital requirements. The following information is available about the projections for

the current year:

Per unit

Elements of cost: (Rs.)

Raw material 40

Direct labour 15

Overhead 30

Total cost 85

Profit 15

Sales 100

Other information:

Raw material in stock : average 4 weeks consumption, Work – in progress (completion stage,

50 per cent), on an average half a month. Finished goods in stock : on an average, one

month.

Credit allowed by suppliers is one month.

Credit allowed to debtors is two months.

Average time lag in payment of wages is 1½ weeks and 4 weeks in overhead expenses.

Cash in hand and at bank is desired to be maintained at Rs. 50,000.

All Sales are on credit basis only.

Required:

(i) Prepare statement showing estimate of working capital needed to finance an activity level

of 96,000 units of production. Assume that production is carried on evenly throughout the

year, and wages and overhead accrue similarly. For the calculation purpose 4 weeks may

be taken as equivalent to a month and 52 weeks in a year.

(ii) From the above information calculate the maximum permissible bank finance by all the

three methods for working capital as per Tondon Committee norms; assume the core

current assets constitute 25% of the current assets.

Answer

Calculation of Working Capital Requirement

(A) Current Assets

Rs.

(i) Stock of material for 4 weeks (96,000  40  4/52) 2,95,385

(ii) Work in progress for ½ month or 2 weeks

Material (96,000  40  2/52) .50 73,846

Labour (96,000  15  2/52) .50 27,692

Overhead (96,000  30  2/52) .50 55,385 1,56,923

(iii) Finished stock (96,000  85  4/52) 6,27,692

(iv) Debtors for 2 months (96,000  85  8/52) 12,55,385

Cash in hand or at bank 50,000

Investment in Current Assets 23,85,385

(B) Current Liabilities

(i) Creditors for one month (96,000  40  4/52) 2,95,385

(ii) Average lag in payment of expenses

Overheads (96,000  30  4/52) 2,21,538

Labour (96,000  15  3/104) 41,538 2,63,076

Current Liabilities 5,58,461

Net working capital (A – B) 18,26,924

Minimum Permissible Bank Finance as per Tandon Committee

Method I : .75 (Current Assets – Current Liabilities)

.75 (23,85,385 – 5,58,461)

.75 (18,26,924) – 5,58,461 = Rs. 13,70,193

Method II : .75  Current Assets – Current Liabilities

.75  23,85,385 – 5,58,461

17,89,039 – 5,58,461 = Rs. 12,30,578

Method III: .75 (Current Assets – CCA) – Current Liabilities

7.3

.75 (23,85,385 – 5,96,346) – 5,58,461

.75 (17,89,039) – 5,58,461

13,41,779 – 5,58,461 = Rs. 7,83,318








https://iibfadda.blogspot.com/?m=0

MSME recollected questions on 15.09.2018

MSME recollected on 15 September 2018

question of msme certificate exam 15/09/2018 on memory based
1.composite loan
2. Current ratio
3.debt equity ratio
4.wto established
6.shareholder of public Limited company
7.Limited liability company
4.minor partner
9.Basel3
10.Npa doubt full assets
11.Msme act 2006
12.dscr ratio
13.working capital gap
14.gross profit Ratio
15.back to back lc
16.preshipment
17.women enterprinure
18.How many culstor
19.techinical viability
20.ssi comes in which act
21.mudra loan maximum
22.msme collateral free loan
24.Mudra Tarun loan
25.medium enterprises Amount in manufacturing unit
26.same small enterprises
27.performance guarantee
28.deferred payments guarantee
29.Loan Appraisal application
30.how many stages of msme
31.sick industry period
32.hand holding company
33.director of public Limited company
34.Cgtmse on 100 lakh
35.Smera credit rating
36.msme based on which credit rating
37.Otms by
38.Sarface comes
39.sarface works
40.Iso90001
41.cluster stage

Bcsbi recollected questions on 15.09.2018

BCSBI recollected question.
15-09-2018 (Many are Repetitive)

1) Educational loan for 3.5 lakhs what is percnt margin?
2) Guarantor ask bank for customer details, will bank provide?
3) A is a customer want deposits Rs. 10000 on 10-05-2017 to Mr. B account, where bank got information that Mr. B have died on 8-05-2017, what would should bank do?
4) FCNR accounts can be opened for a period of maximum?
5) Which one of the following is not a structural difference between marketing of goods and services?
Intangibility/inseparability/Homogeneity/perishability?
6) If bank is not responding to a complaint within how many days’ customer should escalate the matter to Banking ombudsmen?
7) Who has authority to approve research activities in BCSBI?
8) Function of Chief Executive Officer in BCSBI
9) BCSBI rating of member banks is using a scoring scale of
10) As per BCSBI Code regarding Do Not Call registry
11) Change in interest rate on loan products will be informed within?
12) As per BCSBI Code, for collection of dues customers should be contacted between
13) As per BCSBI Code, in case of inoperative/dormant accounts prior to when customer should have informed about this.?
14) In case a return cheque is lost in transit what should bank do?
15) In case of a cheque issued by B to A, amount in figures is Rs. 10,000 and in words is ten thousand which is strike off and written as five thousand.
16) Alteration is duly signed by B. In that case, what bank should do?
17) As per BCSBI code, bank will return all securities/documents/title deeds to mortgaged property of the repayment of all dues
18) though customer has guaranteed someone whose ac is in other branch, can bank retain his property?
19) For a MSE unit to be classified as a sick unit, for what
20) In small accounts, balance at any time should not exceed ----------
21) In order to provide customer satisfaction, bank should
22) Governing Council has max no of member?
23) After 2017 maximum amount claimed in Banking Ombudsman?
24) Bank receive a chq, where everything written in pen except signature in pencil, what bank will do?
25) Power of CEO of BCSBI?
26) Quasi Judicial
27) A gave a chq to B ,who is in different location and after a day A wants to see his chq as he cant recall which amount he had paid..what bank would do ?
28) A comes to Bank with a Minor to open Current account ..what bank do ?
29) What is the % security in MSE loan
30) Maximum collateral free loan amount in MSE

TT and Bill Rates

TT Rates and Bill Rates

Following 4 types of buying and selling rates are important:

1. TT Buying rate

2. Bill Buying rate

3. TT Selling rate

4. Bill Selling rate

In Interbank market, exchange rate is quoted up to 4 decimals in multiples of 0.0025. e.g.

1USD=53.5625/5650

For customers the exchange rate is quoted in two decimal places i.e. Rupees and paisa. e.g. 1

USD =Rs. 55.54.

Amount being paid or received will be rounded off to nearest Rupee.

TT Buying Rate

It is required to calculate when our Nostro account is already credited or

being credited without delay e.g. Receipt of DD, MT, TT or collection of

Foreign bills. This rate is used for cancellation of Forward Sales Contract.

Calculation

Spot Rate – Exchange Margin

Bill Buying Rate Bill Buying rate is applied when bank gives INR to the customer before

receipt of Foreign Exchange in the Nostro account i.e. Nostro account is

credited after the purchase transaction. In such cases.

Examples are:

 Export Bills Purchased/Discounted/Negotiated.

 Cheques/DDs purchased by the bank.

Calculation

Spot Rate + Forward Premium (or deduct forward discount) – Exchange

margin.

TT Selling Rate Any sale transaction where no delay is involved is quoted at TT selling rate.

It is desired in issue of TT, MT or Draft. It is also desired in crystallization of

Export bills and Cancellation of Forward purchase contract.

Calculation

Spot Rate + Exchange Margin

Bill Selling Rate It is applied where handling of documents is involved e.g. Payment against

Import transactions:

Calculation

Spot Rate + Exchange Margin for TT selling + Exchange margin for Bill

Selling

Examples

Q. 1

Bank received MT of USD 5000 on 15th Sep. The Nostro account was already credited. What

amount will be paid to the customer: Spot Rate 34.25/30. Oct Forward Differential is 22/24.

Exchange margin is .80%

Solution

TT buying Rate will be applied

34.25 - .274 = 33.976 Ans.

Q. 2

On 15th July, Customer presented a sight bill for USD 100000 for Purchase under LC. How

much amount will be credited to the account of the Exporter. Transit period is 20 days and

Exchange margin is 0.15%. The spot rate is 34.75/85. Forward differentials:

Aug: .60/.57 Sep:1.00/.97 Oct: 1.40/1.37

Solution

Bill Buying rate of August will be applied.

Spot Rate----34.75 Less discount .60 = 34.15

Less Exchange Margin O.15% i.e. .0512 =34.0988 Ans.

( Transit period is rounded to next month since currency will be cheaper as it is buy transaction)

Q. 3

Issue of DD on New York for USD 25000. The spot Rate is IUSD = 34.3575/3825 IM forward

rate is 34.7825/8250

Exchange margin: 0.15%

Solution:

TT Selling Rate will Apply

Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.0516

TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.

Q. 4

On 12th Feb, received Import Bill of USD-10000. The bill has to retired to debit the account of

the customer. Inter-bank spot rate =34.6500/7200. The spot rate for March is 5000/4500. The

exchange margin for TT selling is .15% and Exchange margin for Bill selling is .20%. Quote rate

to be applied.

Solution

Bill Selling Rate will be applied.

Spot Rate + Exchange margin for TT Selling + Exchange margin for Bill selling =

34.7200+.0520+.0695 = 34.8415 Ans.

Forward Contract – Due date and Transit period

(Bill Buying Rates and Bill Selling Rates)

If due date after adding transit period and forward period falls in a particular month

Buy Transactions

Quote rates applicable to lower month (if currency is at premium) and same month (if currency

is at discount) due to the reason that currency becomes cheaper and Buy low and Sell High

Sale Transactions

Quote rates applicable to Same month (if currency is at premium) and lower month (if currency

is at discount) due to the reason that currency becomes dearer and Buy low and Sell High

Forward contracts can be booked by Resident Individuals up to USD1lac.

Buy

Transactions-

Currency at

Premium

Transit Period is

rounded off to

lower month in

which due date

falls

Spot Rate on 16.07.2012 is 1 USD = 34.6850/7275

Spot August = 4000/4200, Spot Sep = 7500/7700, Spot Oct = 1.05/1.07

Spot Nov =1.40/1.42

Transit Period = 25 days , Exchange Margin = 0.15%

Calculate Forward Buying Rate of 3 M Usance bill.

Due date of realization of Bill = 16.7.2012 + 3M + 25 days = 9.11.2012

By Rounding Transit period to lower month, Oct Rate will be as under:

34.6850+1.05 - .0536 (exchange margin) = 35.6814

Buy

Transactions-

Currency at

Discount

Transit Period is

rounded off to

same month in

which due date

falls

On 22.7.2013,

Spot Rate is 35.6000/6500 Forward 1M=3500/3000 2M=5500/5000

3M=8500/8000

Transit Period ----20 days Exchange Margin = 0.15%.

Find Bill Buying Rate & 2 M Forward Buying Rate

Solution

Bill Buying Rate (Ready) : Bill Date +20 days = 11.8.2013

Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange

Margin 0.15% (0.529)

i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971

Solution:

TT Selling Rate will Apply

Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.0516

TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.

Q. 4

On 12th Feb, received Import Bill of USD-10000. The bill has to retired to debit the account of

the customer. Inter-bank spot rate =34.6500/7200. The spot rate for March is 5000/4500. The

exchange margin for TT selling is .15% and Exchange margin for Bill selling is .20%. Quote rate

to be applied.

Solution

Bill Selling Rate will be applied.

Spot Rate + Exchange margin for TT Selling + Exchange margin for Bill selling =

34.7200+.0520+.0695 = 34.8415 Ans.

Forward Contract – Due date and Transit period

(Bill Buying Rates and Bill Selling Rates)

If due date after adding transit period and forward period falls in a particular month

Buy Transactions

Quote rates applicable to lower month (if currency is at premium) and same month (if currency

is at discount) due to the reason that currency becomes cheaper and Buy low and Sell High

Sale Transactions

Quote rates applicable to Same month (if currency is at premium) and lower month (if currency

is at discount) due to the reason that currency becomes dearer and Buy low and Sell High

Forward contracts can be booked by Resident Individuals up to USD1lac.

Buy

Transactions-

Currency at

Premium

Transit Period is

rounded off to

lower month in

which due date

falls

Spot Rate on 16.07.2012 is 1 USD = 34.6850/7275

Spot August = 4000/4200, Spot Sep = 7500/7700, Spot Oct = 1.05/1.07

Spot Nov =1.40/1.42

Transit Period = 25 days , Exchange Margin = 0.15%

Calculate Forward Buying Rate of 3 M Usance bill.

Due date of realization of Bill = 16.7.2012 + 3M + 25 days = 9.11.2012

By Rounding Transit period to lower month, Oct Rate will be as under:

34.6850+1.05 - .0536 (exchange margin) = 35.6814

Buy

Transactions-

Currency at

Discount

Transit Period is

rounded off to

same month in

which due date

falls

On 22.7.2013,

Spot Rate is 35.6000/6500 Forward 1M=3500/3000 2M=5500/5000

3M=8500/8000

Transit Period ----20 days Exchange Margin = 0.15%.

Find Bill Buying Rate & 2 M Forward Buying Rate

Solution

Bill Buying Rate (Ready) : Bill Date +20 days = 11.8.2013

Spot Rate = 35.6000 Less Forward Discount 1M (0.3500) Less Exchange

Margin 0.15% (0.529)

i.e. 35.6000-.3500-.0529(0.15% of 35.2500) = 35.1971

USA, rate of interest is 6% whereas in Germany, rate of interest is 3% for

EURO. We will borrow from Germany and lend in USA where

1EURO =1.5 USD

Forward Point Calculation for 3 Months

Spot Rate x Interest rate difference x Forward Period

100 x Nos. of days in a year

= 1.5 x 3 x 90

100*360

=0.01125

3 month swap rate = 1.5 + 0.01125 = 1.5112

Calculation of Interest Differential

Forward Points x Nos. of Days x 100

Forward Period x Spot Rate

= 0.01125 x 360 x 100 =3%

1.5 x 90

Ex.1

Calculate TT selling rate for GBP/INR, if USD/INR is 43.85/87 & GBP/USD is 1.9345/49. A

margin of 0.15% is to be loaded.

Solution ; TT selling rate of GBP/INR

1 GBP = 1.9349 USD

= (1.9349 *43.87)+Margin 0.15%

=84.8841+.1273=85.0114 INR 85.0114-------------------------Ans.

Ex.2

A foreign correspondent intends to fund his Vostro Account maintained with Mumbai branch of

SBI. What rate will be quoted if 1 USD = 44.23/27 and margin is 0.08%

Solution : TT buying rate will quoted

44.23-.035 = 44.195 ---------------------------------------Ans.

Ex.3

If Swiss Franc is quoted as USD = CHF 1.2550/54 and in India, USD =INR43.50/52, how much

INR will exporter get for his export bill of CHF 50000.

Solution :

Swiss Franc will be sold for USD in overseas market and USD will be bought in local market i.e.

Sell Rate of CHF and Buy rate of USD.(Buy Low Sell High in both quotations)

1 USD = 1.2554 CHF and 1USD=INR 43.50

1CHF=43.50/1.2554 = 34.6503

Amount as paid to exporter = 34.6503*50000=17,32,515/- ----------------Ans.

(Both are direct quotations and Maxim Buy Low Sell High will apply in both)

Ex.4

If Swiss Franc is quoted as USD = CHF 1.2550/54 and USD =INR43.50/52, how much INR will

Importer pay for his import bill of CHF 50000.

Solution :

Swiss Franc will be bought against USD in overseas market and USD will be sold in local

market i.e. Buy rate of CHF and Sell rate of USD.

1 USD = 1.2550 CHF and 1USD=INR 43.52

1CHF=43.52/1.2550 = 34.6773

Amount to be received from Importer = 34.6773*50000

=17,33,865/- ----Ans.

(Both are direct quotations and Maxim Buy Low Sell High will apply in both)

Q. 5

Exporter received Advance remittance by way of TT French Franc 100000.

The spot rates are in India IUSD = 35.85/35.92 1M forward =.50/.60

The spot rates in Singapore are 1USD = 6.0220/6.0340 1M forward =.0040/.0045

Exchange margin = 0.8%

Solution

Cross Rate will apply

USD will be bought in the local market at TT Buying rate and sold at Spot Selling Rates in

Singapore for French Francs:

TT Buying Rates USD/INR = Spot rate – Exchange margin = 35.8500-.0287 = 35.8213

Spot Selling Rate for USD/Francs = 6.0340

Inference:

6.0340 Franc = 1USD

= INR 35.8213

1 franc = 35.8213/6.0340 = INR 5.9366 Ans.

(Both are direct quotations and Maxim Buy Low Sell High will apply in both)

Q.6 What rate will be quoted for repatriation of FCNR deposit (spot rate or TT rate)

Ans. No rate as the amount is to be paid in Foreign currency itself.

Forex Dealing

Room

operations

It is a service branch which deals Buying and Selling Operations of the

bank. It manages Foreign currency Assets and Liabilities and also

manages Nostro accounts.

A dealer has to maintain two positions:

1. Funds position

2. Currency Position

Currency position can be Overbought or Oversold.It is called Open

position. Hedging is done to square off the open position.

Mid Office deals with Risk Management.

Back Office takes care of settlement and Reconciliation.