What do you mean by foreign exchange? Write down the fundamentals of foreign exchange?

Ans. Foreign exchange refers to the mechanism by which currency of one country converted into currency of another currency and thereby, involves the international transfer of money. It is the means & methods by which rights of wealth in a countries currency are converted into rights of wealth in another currency.


* Fundamentals of foreign exchange: i).   Every country has it’s own currency – legal tender/Distinctive unit of account.

ii). The conversion of one currency into another is effected by banks by book keeping entry carried out in the two centers concerned.

iii). These exchanges are effected by means of credit instruments viz. Draft, mail, transfer, Telegraphic transfer etc.


Define FEX as per our Foreign Exchange Regulation Act 1947?

Ans.  As per Foreign Exchange Act 1947, FEX means foreign currency and includes all deposits, credits & balances payable in foreign currency as well as all foreign currency instruments such as Drafts, TC, Bill of Exchange & Promissory Notes payable in any foreign country.


What do you mean by Authorized Dealer? What are the functions of Authorized Dealer?

Ans. Bangladesh Bank, under Foreign Exchange Regulation Act 1947, authorizes different branches of commercial banks to deal in foreign exchange. These Branches are called Authorized Dealer.   Functions of Authorized Dealer:

  1. i) To buy foreign exchange from its customers without limit.
  1. ii) To sell foreign exchange against importer authorized under import policy of the country.

iii) Provide forward exchange covers in respect of eligible transactions.

  1. iv) Sell foreign exchange for travel abroad at the prescribed quota & sell foreign exchange to customers to cover remittances of various nature.
  1. v) Other few types of transactions subject to obtain Bangladesh Banks approval.
  2. How many types of AD license issued by Bangladesh Bank? Briefly describe their significance?

Ans.  Bangladesh Bank issue two types of AD License. These are as follows: a). Universal: An Universal AD License authorizes the Bank to conduct all types of permitted foreign exchange transaction in all permitted currencies.

b). Limited: A limited AD License authorized handling of only those transactions which specifically mentioned in the license by Bangladesh Bank.


What are the responsibilities of AD Branches?

Ans. i). Being the agent of Bangladesh Bank, AD’s to familiarize themselves with objectives of exchange control & various transactions issued from time to time with regard to operation of exchange control.  

ii). They should follow the instructions contained in the exchange control Manual/Guideline for FEX transaction issued by Bangladesh Bank with amendments from time to time.  

iii). They should follow Bangladesh Bank instruction through circular from time to time.  

iv). They should be careful in scrutinizing application received from the customers for the purpose of import payment, export performance, benefit, release of FEX for invisible payment etc.

v). They should bring to the notice of Bangladesh Bank, any attempt or evasion towards violation of FEX Regulation Act 1947.


Why foreign trade is needed?

Ans.     1). A country which lacks in mineral products has to import them from other countries.   \

2). Differences in size & density of population thus differences in demand.  

3). The stage of industrialization &technical & scientific development, some countries may export capital goods but import raw materials & semi product goods.  

4). Differences in standard of living.


What do you mean by ’visible trade’ & ‘invisible trade’?

Ans. a). Visible Trade: The movement of goods across the national frontiers except as personal baggage,  donations etc. is known as visible trade. These goods are said to be visible because they are recorded in the returns of customs Department.  


b). Invisible Trade: The services rendered/make or received in form of shipping, insurance, technical know how, consultancy etc. capital borrowed or lent, interest and dividends received or paid on account of foreign instrument, the students abroad, gifts, donations etc. constitutes the invisible trade.


What do you mean by ‘Balance of Trade’ & ‘Balance of payment’? What are the distinguish between them?

Ans. a). Balance of Trade: Balance of Trade is a systematic statement of countries export & import of merchandise with rest of the world. It refers to the differences between merchandise exported with the value of merchandise imported.  


b). Balance of Payment:  Balance of payment is a systematic summary of economic transactions of the countries residents with rest of the world within a specific period of time. Normally, within a year.  


Distinguish: Balance of trade reflects only visible trade of a country on the other hand balance of payment reflects both visible & invisible trade of country. Balance of payment is more comprehensive than balance of trade as because balance of trade is only a part of balance of payment. 29.06.09 reviewed.


What are the components of ‘Balance of payment’? What method generally employed to correct adverse Balance of payment?

Ans. The Balance of Payments consists three major components. These are:   i).   Current Account

ii).  Capital Account &

iii). Official reserves Account.  


The current account is similar to profit & loss account which shows the income and expenses of the entity during a year. The capital account (Including official reserve account) is the Balance Sheet or to be more prercise, the fund flow statement. The first part showing changes in the assets

& liabilities & second part revealing the changes in equity.   Methods generally employed to correct adverse Balance of payment:

1). Import restriction.

2). Export promotion.

3). Deflation.

4). Fiscal Measures.

5). Exchange control.


Write short notes on the following:

* Economic Transaction * Residents * Equilibrium *  * Economic Transaction: – Movements of goods in form of export & import. – Rendering of services abroad & using foreign services. – Gift/Grants from one country to another. – Investment made abroad or received from abroad. – Income or investment received from abroad & remitted abroad. – Increase or decrease in the international reserves of the country.

* Residents: Residents means individuals, institutions, corporate bodies, Government Departments etc. domiciled in the country. Units or branches of multinational companies domiciled in the country are also residents. Their transactions with their parent companies or foreign branches would be reflected in the Balance of payment.  

* Equilibrium: By equilibrium in the balance of payment is meant an equality in the payments & receipts of the country in a given period. When the countries credits taken together balance the total of all details in the period, the balance of payment is said to be equilibrium. 29.06.09 reviewed.

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