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Forex module 3
1. Forex Management
Module 3
Vishnu lal v
LEAD College of
Management, Palakkad, Kerala
Mobile No:9746045060
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LEAD College of Management
9/12/2013
2. Module Content
Finance Function: Financial Institutions in
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International Trade.
5 Non resident Accounts:
Repatriable and Non Repatriable, Significance for
the Economy and Bank
Methods of in Trade Settlement: Open
Account, Clean Advance, Documentary
Credit, Documentary, Collection
Documentary Credits (Letter of Credit): Types of
LC – Parties, Mechanism with Illustration
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3. Thunder Words
Repatriability: The ability to move an asset from
a foreign country to an investor's home
country. Assets such as cash are repatriable assets
such as real estate are not. Some countries have laws
that prohibit repatriation of certain assets.
Non- Repatriablity: Not allowed to move the cash to
another country by that countries law
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4. Non Residents Accounts
1.
Non-Resident Ordinary (NRO) Accounts
2. Non-Resident External Rupee (NRE) Accounts
3. Foreign Currency Non-Resident (Bank) (FCNR
(B)) Accounts
4. Non-Resident Non-repartable Rupee Account
(NRNR Accounts)
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6. A. Rupee Accounts
NRO Accounts:
2. NRE Accounts:
3. NRNR Accounts:
1.
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7. NRO Accounts
Non-resident ordinary accounts can be opened
either by money received from abroad in foreign
exchange or out of rupees earned in India.
When an Indian resident goes abroad for job /
employment his local account will automatically be
designated into a non resident ordinary account by
bank.
For this the bank should be informed of his / her
departure outside India for job.
This account can be maintained jointly with
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residents. of Management
Funds held in the account can normally
8. Repatriation (the right to take the money outside
India is known as 'Repatriation Right') of money
outside India is allowed
However, with the introduction of current account
convertibility, Reserve Bank permitted remittances
even out of NRO accounts.
As per instructions prevalent in May 2003, account
holder can remit money up to one million dollar per
year.
NRO accounts can be maintained in any form
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like savings account, fixed deposit, recurring
deposit account, etc.
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9. Conditions regarding repatriation of
balances in NRO accounts
Repatriation is allowed up to US dollars 1 million per
calendar year for any purpose from the balances in NRO
accounts subject to payment of applicable taxes
Limit of US dollars 1 million includes sale proceeds of
immovable properties held by NRIs / PIOs for a period of
10 years
In case a property is sold after being held for less than
10 years, remittance can be made if the sale proceeds
have been held by the NRI/PIO for the balance period
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10. NRE Account
These are again rupee accounts.
The NRE account can be opened only with money
received from abroad only
There can be joint holder to the account but not with
residents. (The joint account holder should also be a
non resident)
The funds held in the account can be freely repatriated
outside India without limit and without any approval
from RBI.
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11. Since the account is maintained in rupee, for
repatriation purpose the Rupee will be converted
into the desired foreign currency at the prevailing
rate of exchange.
Interest earned on the account is free from income
tax.
The account can be maintained as savings bank
account, fixed deposit, recurring deposit, etc.
However, fixed de-posit account should be for a
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minimum period of one year and for a maximum
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period of 3 years.
12. NRNR Accounts
When India faced the balance of payment difficulty in
1991 / 92, RBI introduced this new NRI account with a
view to increase our foreign exchange reserves with a
higher rate of interest.
The account is a term deposit (fixed deposit) account
maintained in rupee.
Money should be remitted from abroad for opening the
a/c.
The funds held in the account were originally exempted
from CRR / SLR requirements and the banks were
offering very high rate of interest (as much as 18% )
initially in 1993.
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13. The balance in the account is not repartable.
Reserve Bank has withdrawn this scheme since April
1, 2002.
new accounts cannot be opened after April 2002.
Further as part of relaxation in convertibility of
rupee, Reserve Bank now permitted to allow
repatriation of funds including interest amount, out of
this account
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14. B. Foreign Currency Accounts
1.
2.
3.
4.
5.
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FCNR Accounts
Foreign Currency Accounts for Residents
RFC Accounts
RFC (D) Accounts
EEFC Accounts
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15. FCNR Accounts
FCNR Accounts are Term Deposit Accounts for a period
ranging from 1 year to 3 years
It can be maintained in four important currencies, viz.,
US Dollar
Pound Sterling,
Japanese Yen
Euro
They are paid back in the same currencies and are
repartable.
These accounts are now known as FCNR (B) Accounts.
'B' stands for Banks. Since the account is maintained in
foreign currency and paid back in the same
currency, there is no conversion of currency takes place
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15 when balance is repatriated outside India.
16. However if the account holder decides to convert the
balance into rupees at maturity, the conversion takes
place at exchange rate ruling at the time of conversion.
Interest earned on the account is tax exempted.
NRE Accounts and FCNR Accounts can be opened by
receiving the money from abroad in foreign currency or
out of any money that is permissible for remittance
abroad.
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17. Foreign Currency Accounts for
Residents
Usually residents (those living in India) are required to
maintain their bank accounts in India in rupee only.
However, in respect of certain categories of residents
Reserve Bank has permitted to maintain foreign
currency accounts.
These are
Resident Foreign Currency accounts (RFC Accounts),
Resident Foreign Currency (Domestic) accounts (RFC (D)
accounts)
Exchange Earners' Foreign Currency Accounts (EEFC
Accounts).
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18. RFC Accounts
These are accounts of resident individuals, who had
come back to India after being abroad as NRIs for some
time.
Similarly he may sell his foreign assets like
securities, property etc., at the time of return to India.
The Returning Indian / PIO may use such foreign
exchange to open the RFC accounts.
It is a rule when an NRI / PIO returns to India for
permanent settlement i.e. when he / she has no
intention to go back abroad, their existing NRE / FCNR
accounts should be converted into resident accounts.
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These accounts can be maintained in any foreign
9/12/2013
19. The funds in this account can be used by the account
holders practically for all purposes.
To illustrate, the account holder can use the RFC
balance again to:
acquire some asset abroad while being in India,
open fresh bank account outside India,
spend the money for his travel / business purposes,
he can gift it to anyone in the world,
use it for educational purposes of his relations etc.
In fact the depositor can decide about the purpose of
use of such funds without the permission of RBI.
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20. RFC (D) Accounts
This account scheme was introduced from January, 2003.
RFC (D) account can be maintained by any resident
individual even when he had not been abroad at any time.
Thus you can open a foreign currency account with a bank in
India with money received from your relations living outside
India.
The account can also be opened with export proceeds
received or foreign exchange earned through consultancy,
etc., services rendered to non residents.
The funds held in the account can be utilized for personal
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purposes as may be approved by RBI. The funds cannot be
LEAD
utilizedCollege of Management in the case of RFC accounts. 9/12/2013
in the way as
21. EEFC Accounts
These accounts can be maintained by residents who happen
to receive money from abroad in foreign currency as in the
case of RFC (D) account.
Normally EEFC accounts are opened by exporters out of sale
proceeds of exports.
One important difference of this account from RFC account is
that EEFC account can be opened only out of foreign
exchange earned.
Thus, the cannot open EEFC account out of unspent foreign
exchange taken for foreign tour.
Further only up to 50 per cent of the money received in
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LEAD currency will
9/12/2013
foreignCollege of Managementbe allowed to be credited into the
22. Reserve Bank varies the percentage of money that can
be put into EEFC Accounts depending upon its policy.
Currently RBI permitted big exporters, professionals and
companies operating from Special Economic Zones to
credit 100 per cent of foreign exchange to credit into the
accounts.
Funds held in EEFC Accounts can be used by the
depositors for personal and business purposes as
approved by RBI from time to time.
Exporters can maintain this account only in the form of
current account without any interest.
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For Eg: In case rupee value is fallen ( say $ 1 = Rs. 40.00 when account is opened and $ 1 = 47.00 when account is matured) at the time of conversion, account holder will gain an extra 7 rupees per dollar for the principal as well as for interest since both are paid in currency of deposit.
It can be opened with gift given in foreign exchange by non residents / NRIs when they visited India or sent from abroad. Supposing you went to Singapore with $ 10000/ purchased from bank for sightseeing, etc., and on your return if you are left with unspent foreign exchange, RFC (D) account can be opened with such left over cash.
