The Foreign Exchange Department at the Central or Zonal office or the overseas branch is
divided into well-defined sections, each undertaking a specialized activity. There is no uniformity among banks either in the allocation of the tasks or in the designations of the officers manning the sections. The functions of foreign exchange departments are follows:
The financial needs of the exporter, right from the moment he conceives of the project and till he realizes export proceeds, are met by banks. The credit extended to the exporter to procure raw materials, process them and prepare them for shipment to the importer is known as pre-shipment credits or packing credit. On shipping the goods the exporter would draw a bill of exchange, with or without a letter of credit, and discount it with the bank. The credit extended to the exporter after shipment is known as post-shipment finance.
2) Financing Imports
Banks on behalf of their importer – customers, issue letters of credit. The opening of the letter of credit by the bank, whereby it undertakes to make payment to the exporters on shipment, enables the importer to conclude the deal with ease. The bank for the import may finance the importer. This finance may take any form, cash credit or loans, as the case may be, and against hypothecation or pledge or mortgage of the item imported. The bank in foreign exchange abroad pays the exported.
3) Remittance Facilities
An importer in India has to pay the overseas exporter. Similarly, an Indian exporter has to receive payment from abroad. A person in India may like to subscribe to a magazine published abroad. An Indian who is employed abroad may like to remit funds for maintenance of his family in India. Thus, all transactions in foreign exchange ultimately result in either remittance of funds into India or remittance of funds from India. For the benefit of Indians residing abroad, banks open and maintain non-resident accounts.
4) Dealings in Foreign Exchange
Banks buy and sell foreign exchange from and to the public. To carry out this function, banks have to keep sufficient stocks of foreign exchange. These are kept in the form of bank accounts abroad. Subject to the rules and regulations of the Reserve Bank and Foreign Exchange Dealers’ Association of India, banks have to quote rates for foreign exchange to be purchased from and sold to the customer. Subject to these regulations the rate quoted would depend upon the rates prevailing in inter bank or international markets and the banks margin of profit, etc. A ‘dealer’ heads this section of the department.
5) Furnishing Credit Information
With a network of correspondent relations with banks aboard, a bank in India is in a position to furnish business information to exporters and importers in India. The information may relate to the credit report on the prospective seller or buyer, market conditions, exchange regulations in different countries, etc. The department should also furnish periodic information on its dealings to its management and to the Reserve Bank. The bank should keep itself constantly updated and be in touch with the latest trend in international markets.