The sphere of activities of a foreign exchange department extends over vast regions and
number of countries. There are no any possibilities for the bank to keep their own branches throughout the world. The difficulty is managed by banks by entering into correspondent relationships. In this basis of arrangement one bank acts as an agent of the other wherever its possible. The Bank from India will enter into the correspondent relationship with a Bank of America. To facilitate the smooth functioning of the arrangement, the signatures of the authorized officials of the banks who will sign the documents and letters n behalf of the respective banks are exchanged between banks. The following are the services generally covered by correspondent arrangement:
1 Cheques, collection of bills, etc.
2 Telegraphic transfers, travelers Cheques, mail transfers, issue of demand drafts.
3 Granting or Guaranteeing of loan and overdrafts.
4 Advising and confirming letters of credit.
5 Sale and purchase of foreign currencies.
6 Furnishing of credit information such as report on business houses, market reports, etc.
The correspondent relationship, also known as agency arrangement, provides for other details like the schedule of charges. The arrangement is reciprocal.