Functions - richRoam

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Tuesday, February 21, 2023

Functions

1.      Maintain foreign currency accounts 

Foreign Exchange has become the lifeblood of any economy. Countries have liberalized their economy for the free transfer of capital, foreign investment, and foreign trade.  Banks have been allowed to maintain foreign currency accounts in major currencies viz, US Dollars, Pounds Sterling, EURO, and Japanese Yen. Foreign exchange is surrendered to Central Bank for accounting towards exchange reserves and local currencies are paid in exchange. However, the account holders are paid in any currency (subject to local laws) of their choice applying the subject exchange rates. Deposits may be accepted in Current and Savings accounts, Fixed Deposits of 3, 6, 12, 24, and 36 months maturities.

Accounts are free from all foreign exchange restrictions (subject to local laws) and balances in the accounts and income therefrom are exempt from the levy of Wealth Tax, Income Tax and any compulsory deductions with the purpose to encourage foreign exchange reserves. Clearing facilities for transfer among accounts and banks is provided by the central bank.

2.    Overseas investment accounts (Treasury bills, currency exchanges, and stock exchanges)
3.    International Trade Finance 

  • Documentary Letter of Credit 

Credit means any arrangement, however, named or described, that is irrevocable and thereby constitutes a definite undertaking of the issuing bank to honor a complying presentation. (ICC, UCP 600)Financing international trade, the banker can play its role not only in the economic development of a country but can generate a stream of income for its institution. The fast communication, transportation, and clearance have made it more lucrative for banks. While issuing a Documentary Credit, the Trade Officer must consider the position of both bank and its customer i.e. applicant.  The financial worth shall be verified.  Bank must vet the proposal of Documentary Credit in a way as if a fund-based facility is being provided to the customer. Bank must safeguard its position by retaining margin, and obtain a guarantee, collateral, or pledge as a fallback in case of an eventuality. Banks must also consider the chances of malpractice like money laundering. A documentary Credit is an undertaking made by a bank, either at the request of the applicant or on its own behalf, to pay a specified amount in an agreed currency to a beneficiary, on condition that the beneficiary presents stipulated documents within a prescribed time limit.

  •  Documentary Collections 

Collection services offered by banks facilitate the creditor in one country to obtain a claim from a debtor in another through banking channels at a minimum cost. Therefore, a collection is a payment mechanism in which a creditor uses a bank as his agent in collecting payment from a debtor located across the border. When the bank collects payment on behalf of the seller (the Principal) by delivering documents to the buyer is referred to as a collection. Under documentary collections, the bank concerned is under no obligation to pay as it is under the letter of credit. In a documentary Collection, a Bank collects payment for the seller by delivering documents to the buyer. Here again, the bank acts as an intermediary between the buyer and the seller. In this case, however, the seller does not receive payment until after payment has been made to the remitting bank. The seller, therefore, has to wait longer for his money than if he were being paid un­der a documentary credit. The seller risk is not fully covered. When the seller part with the goods, he still has no assurance that the buyer or the buyer's bank will pay, he simply has to trust in their ability and willingness to do so. Documentary collections are therefore normally used in cases where the seller and buyer are parent and /or subsidiaries or when the buyer and seller are in long business relationships. 

  • International Guarantee 

“If you (Mr. X) lend BHD.100.00 to Mr. Z and Mr. Z does not pay you, I (Mr. K) will’ is a guarantee. A guarantee is defined as: “A contract to perform the promise, or discharge the liability, of a third person, in case of his default”. Guarantee is a promise by one person called “Surety” to another for answering the present or future debt of a second person called “principal debtor” and the person in whose favor the guarantee is issued is “creditor”. Bank may issue a performance or payment guarantee which serves to protect claims arising from a loan or from some other financial liability. If a buyer/ importer fails for any reason to make payment when the seller/exporter has met his contractual obligations (i.e. has de­livered the goods or performed the service as agreed), a written declaration to this effect is sent to the guaran­tor bank, which will then be obliged to pay. This is quite distinct from the more usual function of a bank guar­antee, which is to ensure that the seller carries out his side of the contract.

4.    Sale and Purchase of foreign currency banknotes 
5.    Participation in Syndication/ Consortium lending
6.    International Remittances
7.    Home Remittances

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