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Forex module 3

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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.
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    • 1. Forex Management Module 3 Vishnu lal v LEAD College of Management, Palakkad, Kerala Mobile No:9746045060 1 LEAD College of Management 9/12/2013
    • 2. Module Content  Finance Function: Financial Institutions in     2 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 LEAD College of Management 9/12/2013
    • 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 3 LEAD College of Management 9/12/2013
    • 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) 4 LEAD College of Management 9/12/2013
    • 5. ……. But…… ……..…These accounts can be classified into two categories…..…………… 5 LEAD College of Management 9/12/2013
    • 6. A. Rupee Accounts NRO Accounts: 2. NRE Accounts: 3. NRNR Accounts: 1. 6 LEAD College of Management 9/12/2013
    • 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 7 LEAD College 9/12/2013 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 8 like savings account, fixed deposit, recurring deposit account, etc. LEAD College of Management 9/12/2013
    • 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 9 LEAD College of Management 9/12/2013
    • 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. 10 LEAD College of Management 9/12/2013
    • 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 11 minimum period of one year and for a maximum LEAD College of Management 9/12/2013 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. 12 LEAD College of Management 9/12/2013
    • 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 13 LEAD College of Management 9/12/2013
    • 14. B. Foreign Currency Accounts 1. 2. 3. 4. 5. 14 FCNR Accounts Foreign Currency Accounts for Residents RFC Accounts RFC (D) Accounts EEFC Accounts LEAD College of Management 9/12/2013
    • 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 LEAD College of Management 9/12/2013 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. 16 LEAD College of Management 9/12/2013
    • 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). 17 LEAD College of Management 9/12/2013
    • 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. 18 LEAD College of Management  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. 19 LEAD College of Management 9/12/2013
    • 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 20 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 21 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. 22 LEAD College of Management 9/12/2013
    • 23. …….But……….. ……………………..For University Exam………..……. ……at least study the following…… 23 LEAD College of Management 9/12/2013
    • 24. 1. 2. 3. 4. 5. NRO Account Non-Resident (External) Rupee Accounts (NRE Accounts) Foreign Currency (Non –Resident) Accounts (Banks) (FCNR (B) Accounts) Non-Resident (Non-Repatriable) Rupee Deposit Accounts (NRNR Accounts) Foreign Currency Accounts for Residents Refer Devesh Pandey Corporate Law (Forex in India, 5 Edition) 24 LEAD College of Management 9/12/2013
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