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Foreign Exchange Management Act (FEMA) for Export Import Foreign Exchange. Introduction

Foreign Exchange Management Act or in short (FEMA) is an act that provides guidelines for  the free flow of foreign exchange in India. It has brought a new management regime of  foreign exchange consistent with the emerging frame work of the World Trade Organisation (WTO). Foreign Exchange Management Act was earlier known as FERA (Foreign Exchange Regulation Act), which has been found to be unsuccessful with the proliberalisation policies of the Government of India. FEMA is applicable in all over India and even branches, offices and agencies located outside India, if it belongs to a person who is a resident of India. Some Highlights of FEMA  

It prohibits foreign exchange dealing undertaken other than an authorised person; It also makes it clear that if any person residing in India, received any Forex payment (without there being a corresponding inward remittance from abroad) the concerned  person shall be deemed to t o have received they the y payment from a nonauthorised person. p erson. There are 7 types of current account transactions, which are totally prohibited, and therefore no transaction can be undertaken relating to them. These include transaction relating to lotteries, football pools, banned magazines and a few others. FEMA and the related rules give full freedom to Resident of India (ROI) to hold or  own or transfer any foreign security or immovable property situated outside India. Similar freedom is also given to a resident who inherits such security or immovable  property from an ROI. An ROI is permitted to hold shares, securities and properties acquired by him while he was a Resident or inherited such properties from a Resident. The exchange drawn can also be used for purpose other than for which it is drawn  provided drawl of exchange excha nge is otherwise permitted for fo r such purpose. Certain prescribed limits have been substantially enhanced. For instance, residence now going abroad for business purpose or for participating in conferences seminars will not need the RBI's permission to avail foreign exchange up to US$. 25,000 per  trip irrespective of the period of stay, basic travel quota has been increased from the existing US$ 3,000 to US$ 5,000 per calendar year.

Buyers's /Supplier's Credit

Trade Credit have been subjected to dynamic regulation over a period of last two years. Now, Reserve Bank of India (RBI) vide circular number A.P. (DIR Series) Circular No. 24, Dated  November 1, 2004, has given general permission to ADs for fo r issuance of Guarantee/ Guarante e/ Letter of  Undertaking (LoU) / Letter of Comfort (LoC) subject to certain terms and conditions . In view of the above, we are issuing consolidated guidelines and process flow for availing trade credit . 1. Definition of Trade Credit : Credit extended for imports of goods directly by the overseas supplier, bank and financial institution for original maturity of less than three years from the date of shipment is referred to as trade credit for imports. Depending on the source of finance, such trade credit will include supplier's credit or 

 buyers credit , Supplier 's credit relates to credit for imports into India extended by the overseas supplier , while Buyers credit refers to loans for payment of imports in to India arranged by the importer from a bank or financial institution outside India for  maturity of less than three years. It may be noted that buyers credit and suppliers credit for three years and above come under the category of External Commercial Borrowing (ECB), which are governed by ECB guidelines. Trade credit can be availed for import of goods only therefore interest and other charges will not be a part of trade credit at any point of time. 2. Amount and tenor : For import of all items permissible under the Foreign Trade Policy (except gold), Authorized Dealers (ADs) have been permitted to approved trade credits up to 20 millions per import transaction with a maturity period ( from the date of shipment) up to one year. Additionally, for import of capital goods, ADs have been permitted to approved trade credits up to USD 20 millions transactions with a maturity period of more than one year and less than three years. No roll over/ extension will be permitted by the AD  beyond the permissible period. 3. All in cost ceiling : The all in cost ceiling are as under: Maturity period up to one year 6 months LIBOR +50 basis points. Maturity period more than one year but less than three years 6 months LIBOR* + 125  basis point * for the respective currency of credit or applicable benchmark like EURIBOR., SIBOR, TIBOR, etc. Issue of guarantee, letter of undertaking or letter of comfort in favour of overseas lender : RBI has given general permission to ADs for issuance of guarantee / Letter of Undertaking (LOU) / Letter of Comfort (LOC) in favour of overseas supplier, bank and financial instruction, up to USD 20 millions per transaction for a period up to one year for import of all non capital goods permissible under Foreign Trade Policy (except gold) and up to three years for import of capital goods. In case the request for trade credit does not comply with any of the RBI stipulations, the importer needs to have approval from the central office of RBI. FEMA regulations have an immense impact in international trade transactions and different modes of payments.RBI release regular notifications and circulars, outlining its clarifications and modifications related to vario a countrysections of FEMA.

Export International Trade Transport Risk. Introduction

It is quite important to evaluate the transportation risk in international trade for better  financial stability of export business. About 80% of the world major transportation of goods is carried out by sea, which also gives rise to a number of risk factors associated with transportation of goods. The major risk factors related to shipping are cargo, vessels, people and financing. So it

 becomes necessary for the government to address all of these risks with broadbased security  policy responses, since simply responding to threats in isolation to one another can be both ineffective and costly. While handling transportation in international trade following precaution should be taken into consideration. 

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In case of transportation by ship, and the product should be appropriate for  containerization. It is worth promoting standard order values equivalent to quantities loaded into standard size containers. Work must be carried out in compliance with the international code concerning the transport of dangero a countrygoods. For better communication purpose people involve in the handling of goods should be equipped with phone, fax, email, internet and radio. About the instructions given to the transport company on freight forwarder.  Necessary information about the cargo insurance. Each time goods are handled; there risk of damage. Plan for this when packing for export, and deciding on choice of transport and route. The expected sailing dates for marine transport should be built into the  production programme, especially where payments is to be made by Letter of  Credit when documents will needs to be presented within a specified time frame. Choice of transport has Balance Sheet implications. The exporter is likely to received payments for goods supplied while they are in transit. Driver accompanied road transport provides peace of minds, but the ability to fill the return load will affect pricing.

Transport Insurance Export and import in international trade, requires transportation of goods over a long distance. No matter whichever transport has been used in international trade, necessary insurance is must for ever good. Cargo insurance also known as marine cargo insurance is a type of insurance against physical damage or loss of goods during transportation. Cargo insurance is effective in all the three cases whether the goods have been transported via sea, land or air. Insurance policy is not applicable if the goods have been found to be packaged or transported  by any wrong means or methods. So, it is advisable to use a broker for placing cargo risks. Scope of Coverage The following can be covered for the risk of loss or damage: 

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Cargoimport, export cross voyage dispatched by sea, river, road, rail post, personal courier, and including associated storage risks. Good in transit (inland). Freight service liability. Associated stock.

However there are still a number of general exclusion such loss by delay, war risk, improper   packaging and insolvency of carrier. Converse for some of these may be negotiated with the insurance company. The Institute War Clauses may also be added. Regular exporters may negotiate open cover. It is an umbrella marine insurance policy that is activated when eligible shipments are made. Individual insurance certificates are issued after  the shipment is made. Some letters of Credit Will require an individual insurance policy to be issued for the shipment, While others accept an insurance certificate. Specialist Covers Whereas standard marine/transport cover is the answer for general cargo, some classes of   business will have special requirements. General insurer may have developed specialty teams to cater for the needs of these business, and it is worth asking if this cover can be extended to export risks. Cover may be automatically available for the needs of the trade. Example of this are: 

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Project Constructional works insurers can cover the movement of goods for the  project. Fine art Precio a countrystonesSpecial Cover can be extended to cover sending of precio a countrystones. Stock through put cover extended beyond the time goods are in transit until when they are used at the destination.

Seller's Buyer's Contingent Interest Insurance An exporter selling on, for example FOB (INCOTERMS 2000) delivery terms would according to the contract and to INCOTERMS, have not responsibility for insurance once the goods have passed the ship's rail. However, for peace of mind, he may wish to purchase extra cover, which will cover him for loss or will make up cover where the other policy is too restrictive . This is known as Seller's Interest Insurance. Similarly, cover is available to importers/buyers. Seller's Interest and Buyer's Interest covers usually extended cover to apply if the title in the goods reverts to the insured party until the goods are recovered resold or returned. Loss of Profits/ Consequential Loss Insurance Importers buying goods for a particular event may be interested in consequential loss cover in case the goods are late (for a reason that id insured) and (expensive) replacements have to be found to replace them. In such cases, the insurer will pay a claim and receive may proceeds from the eventual sale of the delayed goods

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