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  • 1. Remittances Chapter 5 Remittances Chapter Overview Remittances  Cashier’s Order  Demand Draft  Telegraphic Transfer  Mail Transfer Remittances can be defined as “a sum of money sent in payment for something” ….(Oxford Advanced Learner’s Dictionary, 1995)or it is the transfer of fund done in a banking system. It is a service provided by acommercial bank to its customers. In Malaysia remittances can be done through: i. Cashier’s Order ii. Demand Draft iii. Telegraphic Transfer iv. Mail Transfer 75 | P a g e
  • 2. Chapter 5 Remittances Learning Objectives: At the end of this chapter you should be able to: 1. Classify various types of remittances 2. Explain the usage of each remittance account 3. Elaborate the process of applying for remittance account 4. Distinguish the feature of each remittance account5.1 CASHIER’S ORDERA cashier’s order is also known as Banker’s Cheque. It is in a form of a cheque drawn on abank. It has the authorized signatures of bank’s officers. The difference between acashier’s orders as compared to a cheque is that the cashier’s order is a cheque issued by abank and therefore it normally does not have default in payment.It is used normally when payment by personal cheque is not accepted or payment in cash isnot advisable. It is drawn and payable at the issuing Bank (branch) itself. A customerneeds to furnish the following information in order for a cashier’s order to be issued by abank: a. Name and address of customer/applicant. An identification card is also required to be produced to the bank officer. b. Name and address of beneficiary (who to receive the money/fund). c. Application date. d. Amount involved. e. To mention whether the transfer is by cash, or cheque or debiting the applicant’s account.76 | P a g e
  • 3. Remittances Chapter 5SPECIMEN  8  :    APPLICATION  FORM  FOR  BANKER’S  CHEQUE(BC),  DEMAND  DRAFT  (DD),  PAYMENT ORDER (PO) AND TELEGRAPHIC TRANSFER (TT)  Y2K BANK  Date : ……………………………….  APPLICATION FOR  PARTICULARS OF  PARTICULAR OF  APPLICANT  BENEFICIARY   BANKER’S CHEQUE  Name:  Name:  DEMAND DRAFT  IC No:                     Tel No:  Address:      PAYMENT ORDER  Name & Address of Bank:    TELEGRAPHIC  Address:   TRANSFER        Account No:  MACHINE PRINTFor my/our account and risk and without responsibility or liability to yourselves and subject to the Terms and Conditions set forth on the reverse which I/We have read and understood, please  issue  your  draft/effect  the  transfer  as  specified.    Payment  is  to  be  made  in  the following  Cash  Cheque  No.:  …………  for  RM  and  debit  the  bank  charges  or  any  shortfall  (if  the  cheque amount is insufficient) to my/our account.  Debit my/our saving  77 | P a g e
  • 4. Chapter 5 RemittancesContinuation:  EXCHANGE CONTRACT NO:  FOREIGN CURRENCY  SPECIAL RATE BY  RATE  LOCAL CURRENCY  Commission  Postage  Stamp Duty  Cost of Cable TOTAL This  section  is  to  be  completed  as  required  under  the  Exchange  Control  Act  1953  (for resident to non‐resident transactions only)  APPLICANT     ….  RESIDENT….NON‐RESIDENT  BENEFICIARY  ….  RESIDENT….NON‐RESIDENT    I. For payment above M$10,000, please fill in form P. II. For payment above M$500 to M$10,000, indicate the reasons as below:  Import of Goods  Services…… Freight & Insurance…..Travel (excluding passenger fares)…….Education         …….Interest on loans, debt securities & deposits…….Other services  Transfer  Capital Transactions  SIGNATURE  I/We  confirm  the  above  information  and  VERIFIED  application is correct and in order  APPLICANT’S SIGNATURE & CHOP 78 | P a g e
  • 5. Remittances Chapter 5Continuation:  FOR BANK’S  REFERENCE  TEST  TIME  RECEIVED BY  RELAYED BY  CASH RECEIVED BY  USES ONLY  NO.  NO.  CASHIER/TELLER 5.2 DEMAND DRAFT (DD)Cashier’s order is used for remitting money/fund in the same area but DD is used to remitfund to beneficiary who is at different area i.e. in another town/area or country. This is to saythat the bank being addressed is required to pay on DD to the person/beneficiary specifiedon the draft.DD can be divided into two types: a. Local DD DD is drawn in Malaysian Ringgit and payable in Malaysia. The applicant will indicate where he wants the DD to be payable. The bank officer in return will locate the branch of the bank in that town and if there is no branch of the bank available, the DD can be drawn at its correspondence bank and if no correspondence bank available, the bank officer will try to find other bank available. Drawing bank/issuer has to inform the drawee bank that it has issued the DD and also to make arrangements to transfer fund to the drawee bank. The maturity of a DD is six months. Under local DD, we have 2 types: • Outward DD – is DD drawn by an issuing bank/drawing bank • Inward DD - is DD issued by other bank and received by a drawee bank b. Foreign DD If local DD is in Malaysian Ringgit, foreign DD will be in foreign currency. 79 | P a g e
  • 6. Chapter 5 Remittances Foreign DD also can be divided into two: • Outward foreign DD – it is necessary to mention the amount and currency involved and also the selling rate • Inward foreign DD - DD issued by other bank and received by a drawee bank5.3 TELEGRAPHIC TRANSFER (TT)TT is a mode to transfer of fund electronically by using cable, telex, fax, telephonetransmission and through Soceity for Worldwide Interbank Financial Telecommunication(SWIFT) . Since the transfer is not using any signature, therefore Test Key (authenticationsystem) is needed. TT can be used domestically or internationally.TT can be divided into two: a. Outward TT Outward TT can be for in or out a country. Please refer to Specimen 8 for applying an outward TT. Local outward TT can be made in Malaysian Rinngit but for overseas transfers can be done in Malaysian Ringgit or foreign currencies. The cost involved will include the amount to be remitted, cost of inland exchange for local TT and transmission charges. If the TT is done in foreign currency, the Malaysian Ringgit equivalent will be calculated at prevailing selling rate. b. Inward TT Inward TT can be from in or out the country, either from other local branches, local agents or from overseas branches or overseas agents. To remit the fund, the bank has to contact the beneficiary. If the inward TT is in foreign currency, the Malaysian Ringgit equivalent is calculated at the buying rate.80 | P a g e
  • 7. Remittances Chapter 55.4 MAIL TRANSFERMail transfer is the same as the TT. The difference will be the message is sent through mailrather than electronically. Please refer to Specimen 8 for applying for a mail transfer.To end-up Chapter B2 : Remittances, we need also to know about standing ordersince it is also related to transmitting/remitting fund from one person to another.5.5 OTHER: STANDING INSTRUCTIONSA standing instruction is an instruction given by a customer to a bank to remit regular intervalof payment or transfer of fund to a same person or beneficiary. The amount involved is alsothe same amount. Examples of such payments will be payments for loans, insurancepremium, monthly gift to parents or children pocket money (for children staying in boardingschools or away from parents). A form needs to be filled up with the information related toname and address of beneficiary, amount involved, the payment interval, date of paymentand from which account the remittance is to be made .The bank will execute the standing instruction by remitting payment by cashier’s order, orDD, or TT, or mail transfer or by crediting the beneficiary account. Checklist  I am now able to: Classify various types of remittances Explain the usage of each remittance account Elaborate the process of applying for remittance account Distinguish the feature of each remittance account Take a break before you try doing the following problems 81 | P a g e
  • 8. Chapter 5 Remittances Practice  1. Discuss the ways how a person can remit money/fund in Malaysia by using services offered by a commercial bank.2. Compare and contrast between cashier’s order and demand draft.3. List the advantages of using telegraphic transfer in remitting money. Reference  1. Money and Banking, Bank Negara Malaysia, 1994, Kuala Lumpur2. The Central Bank And The Financial System In Malaysia, Bank Negara Malaysia, 1999, Kuala Lumpur3. BNM Annual Report 1999, Bank Negara Malaysia, 1999, Kuala Lumpur4. Reed, Cotter, Gill; Commercial Banking, Prentice Hall, U.S.A.5. Operations of Financial Institutions, IBBM, 1996, Kuala Lumpur6. Johnson Pang and Nathaniel G Savarimuthu, Banking In Malaysia, Longman Malaysia, 199182 | P a g e