Introduction to Foreign Exchange

1. Chapter - 1
Introduction to Foreign Exchange

2. FOREIGN EXCHANGE (FE)
• The process or mechanism by which the currency of
one country is converted into the currency of another
country and thereby involves in the international
transfer of money.
• In banks when we talk of foreign exchange, we refer to
the general mechanism by which a bank converts
currency of one country into that of another.

3. • The expression “Foreign Exchange” is also popularly used
to denote a “foreign currency”.
• The term “currency” includes;
– Notes and coins,
– Bank balances and deposits in foreign currency, and
– Instruments which are capable of being used as currency.
 Bill of Exchange
 Promissory Notes
 Letter of Credit
 Travelers Cheques
 Drafts
 Telegraphic Transfers (TT)
FOREIGN EXCHANGE (FE)

4. Fundamental of Foreign Exchange
• Every country has its own currency.
• Conversion of one currency into another is affected
by banks.
• These exchanges are affected by means of credit
instruments.
FOREIGN EXCHANGE

5. FOREIGN EXCHANGE MARKET OF BANGLADESH
• The statute for administration of foreign currency in
Bangladesh is Foreign Exchange Regulation Act, 1947.
• Responsibility and authority of administration of foreign
exchange is vested by the Govt. with the Bangladesh Bank.
• Bangladesh Bank authorizes any person to deal in foreign
exchange and any person who deals with FE has to abide
by the direction given by Bangladesh Bank.
• Bangladesh adopted Floating Exchange Rate regime since
May 31, 2003.

6. FOREIGN EXCHANGE MARKET OF BANGLADESH
AUTHORIZED DEALERS (AD)
• Selected branches of schedule banks, which are authorized
to deal in foreign exchange by Bangladesh Bank.
• An authorized dealer is generally been delegated power
with:
– To buy foreign exchange from the customers without limits,
– To sell foreign exchange against imports,
– To sell foreign exchange for travel abroad,
– To buy or sell foreign exchange from or to customers to
cover remittances.

7. AUTHORIZED DEALERS (cont…)
• License to deal in foreign exchange is given in respect of
individual branch of Authorized Dealers. The licenses
are of two types:
– Universal License: Authorizes to conduct all types of
foreign exchange transactions in all permitted foreign
currencies.
– Limited License: Authorizes to conduct only those
types of foreign exchange transactions in those
permitted foreign currencies which are mentioned in
the license only.
FOREIGN EXCHANGE MARKET OF BANGLADESH

8. AUTHORIZED MONEY CHANGERS
• Persons/firms who are licenses to the purchase and
sale convertible foreign currency notes, coins, and
other foreign currency instruments like travelers
cheques, draft & international money orders etc.
from and to incoming and outgoing tourists.
FOREIGN EXCHANGE MARKET OF BANGLADESH

9. • An authorized money changer are of two types:
– Full-Fledge Money Changer is authorized to undertake
both purchase and sale of permitted foreign currency
notes, coins, and other foreign currency instruments.
– Restricted Money Changer is authorized only to
purchase of permitted foreign currency notes, coins and
other foreign currency instruments which are mentioned
in the license, only under the condition that all that such
collection are surrendered by them in turn to an
authorized dealer in foreign exchange at official rate.
FOREIGN EXCHANGE MARKET OF BANGLADESH