Introduction to Foreign Exchange
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This document provides an overview of foreign exchange, including: - Foreign exchange involves the conversion of one country's currency into another country's currency to facilitate international money transfers. - Banks facilitate foreign exchange by converting currencies using credit instruments like bills of exchange, promissory notes, letters of credit, and telegraphic transfers. - Bangladesh's foreign exchange market is regulated by the Bangladesh Bank and operated through authorized dealers, which are bank branches authorized to buy and sell foreign currencies, and authorized money changers, which purchase and sell foreign currencies from tourists.
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