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India Witness 30% Rise In Foreign Exchange In May

India has spotted a prodigious 30% rise in foreign exchange earnings from the tourism sector in the month of May. There has been a 19% increase in tourist visits compared to the same period in the last two years. Foreign Exchange Earnings(FEEs) during May 2017 were RS.12,403 crore as compared to RS. 10,260 crore in May 2016 nad Rs. 9,505 crore in May 2015 as per RBI’s credit data of Travel head from Balance Of Payments. The growth in FEEs in May 2017 over May 2016 was 20.9%, compared to a growth of 7.9% in May 2016 over May 2015. The FEEs during Jan-May 2016 was 62,072 with 14% increase from Jan-May 2015 and with the growth of 19.2% Jan-May 2017, the amount totalled 74,008 crore. The Foreign Tourists Arrivals (FTAs) in May 2015 was 5.09 lakhs and in May 2016, FTA was 5.27 lakhs with an increase of 3.5%, India has witnessed immense growth in May 2017 by 19.5% with 6.30 lakhs. Government’s “e-visa” facility launched in November 2014 has led to a growth in tourists arrivals to the country. Under “E-Tourists Visa”, a foreign tourist can pay his visa fee online by uploading his passport and photograph. Electronic travel authorisation or e-visa will be sent through mail on approval of applications after being processed by the authorities within 72 hours.
India Witness 30% Rise In Foreign Exchange In May
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India Witness 30% Rise In Foreign Exchange In May 44 India Witness 30% Rise In Foreign Exchange In May Blog
Kranthi Tilak Reddy Jun 26, 2017
India has spotted a prodigious 30% rise in foreign exchange earnings from the tourism sector in the month of May. There has been a 19% increase in tourist visits compared to the same period in the last two years. Foreign Exchange Earnings(FEEs) d...
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The Core Components of Cross Currency Swaps

WHAT ARE CROSS CURRENCY SWAPS? A cross currency is an over the counter(OTC) derivative in the form of an agreement between two parties to exchange the interest payments and principal on loans denominated in two different currencies.The payment of interest can be made at different rates, like either fixed or floating rates and at different frequencies.They are motivated by comparative advantage.At the initial or origin of swap through an agreement, the counter parties exchange notional principals in two currencies of their choice.During the life of the agreement, each party pays interest to the other.For example,if a India-based company is looking forward to acquire some dollars and a US-based company is looking forward to acquire some Indian rupees these companies could perform a swap. A currency swap should be distinguished from a central bank liquidity swap.There is an increase and a wide range of acceptance as essential risk management tools by financial institutions,corporations engaged in foreign direct investment.  etc.It is purely composed of two legs- receiving and paying leg.Cross currency swaps is one of the best way to fully hedge a loan transaction as their  terms can be structured to exactly mirror the underlying loan..They are said to be an alteration of the cash flows that is associated with the payments and not a source of capital itself.There is no physical exchange of two currency flows in a non-deliverable swap(NDS).Instead,the USD equivalent of  the local currency, which is determined at the spot rate on the date of payment and the net is paid to the appropriate party. Theoretical swap rate= present value of future rate cash flow                                               n                                                Σ,  national price x days  x  df                                            1-1                            360           1               Market value that effect swap pricing includes changes in the level of interest rates,changes in swap spreads,change in shape of interest rate yield curve and exchange rates.Also, like forward and futures contracts, swaps are priced to have a value of zero at inception. There are a number of swaps namely- amortizing swap, step-up swap, credit default swap, compounding swap, fixed or floating currency swap, equity swap, puttable swap and swaptions. Finally, if the buyer is wishing to exit the swap, he can enter into an offsetting swap with the original counter party or whoever offers the best price.The swap involves three important elements: The initial exchange of principal: In the initial exchange, decisions on the mode of coupon payments method are made. It can be fixed vs fixed, fixed vs floating, floating vs floating and is usually driven by the demand of international funds flow.They have significant settlement risk exposure from the high value of the initial and final principal exchange.Interest payment:Here, the value is derived from current spot rate and forward interest rates.If the firm thought that the price would rise or fall, it would enter into a swap agreement and pay fixed to receive floating, or floating to receive fixed, in order to protect it from rising debt service payments or to take advantage of lower debt service payments respectively. Here no principal is swapped only the coupon payments.As said earlier,swap itself is not a source of capital, but can be put across as the alteration of cash flows associated with payments. Interest rates are interrelated to foreign exchange forward rates and foreign exchange spot rates by interest rate parity(IRP) principle. The final exchange of principal:The total return of assets in periodic cash flow includes floating or fixed rates such as LIBOR rates.Since most swaps are executed on large notional amounts, this could put the payer at a risk of hedge fund’s default if the fund is not sufficiently capitalized.   RISKS ASSOCIATED WITH SWAPS  Interest rates changes can cause the gap position of a bank or a firm to change.Thus, the  swap’s effectiveness can change.In other cases, the  other party may not want to exchange the same amount of cash flows.  PROS AND CONS There is no upfront cost, meanwhile it is highly credit intensive.These arrangements expose users to interest risk and credit risk, but at the same time reduce transfer risk.Client is hedged against foreign  exchange risks in terms of both principal  and coupons as the swap locks in current market price,but liability risk and interest rate risk comes into picture when the swap payments are due and floating rate on payment leg is higher than receiving  leg.  For simple and better understanding, refer to the images below:  In the above structure,there is a cross currency swap between USA and INDIA in USD(dollars) and INR(rupees).USD of 10 million dollars is  exchanged at a rate of 6%  paid by US banks to INR value of 450 million as per the spot rates at 7% paid by Indian banks.It is a simple example of  currency swaps between countries that help them to enter into foreign markets and have a standard place globally.  THESE ARE THE STATISTICS OF CROSS CURRENCY TRANSACTIONS  The statistics above explains the annual growth of international liabilities and assets of banks in India.The red line indicates total international assets and the blue line indicates the total international liabilities.We can notice that the liabilities are high in 2010, and with the efforts made to reduce them, there has been a significant decrease in 2012-2013, which has been maintained with an average of 25-30%.The total assets had a significant growth from the past few years. These statistics establish how cross currency transactions are gaining importance and are having a rapid growth in India and globally .The RBI  in India has taken steps to increase cross currency pairs in order to facilitate efficient hedging.This also has a major role in shaping the global market in a more efficient manner.     
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The Core Components of Cross Currency Swaps

The Core Components of Cross Currency Swaps

Kranthi Tilak Reddy
WHAT ARE CROSS CURRENCY SWAPS? A cross currency is an over the counter(OTC) derivative in the form of an agreement between two parties to exchange the interest payments and principal on loans d...
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Bank Consolidation Proposal by Arun Jaitley

Union Finance Minister, Arun Jaitley and the RBI Deputy Governor SS Mundra were present at the 2nd Annual meeting of board of governors of the Asian Infrastructure Investment Bank(AIIB)  held at South Korea. The idea was to actively participate in speedy resolution of bad assets of Indian banks."Consolidation of banks was not on the agenda as far as this present meeting is concerned. But I can tell you, we are actively working in that direction,"  said Jaitley. "We have to plan a model for consolidation which will be region-based so that we have a few strong banks in the west, north, south and east," Vinod Rai said. "That will also avoid branch-based redundancies." Consolidation may happen for three different reasons with three different domains- state, private, and old private sector community dominated banks. The system will work more efficiently if the banks are consolidated to fewer but robust banks. India can witness economic growth rapidly by consolidation of India’s public sector banks.Spotting job creation investment and credit growth, aids in rebuilding the existing financial system and ranking India as Asia’s third largest economy. 700 billion rupees ($ 10.5 billion) has been earmarked in bank for capital injections from budgets by the Finance Minister, Arun Jaitley, covering 4 years ending March 2019. The focus should be more on state-run banks than private peers who are better structured financially.At the end of 2016-2017, with the turnover of 6lakh crores, public banks are left overburdened with bad loans. Jaitley has assured that the solution for the same is arriving soon. As we can see, that 54% of Indian banks are nationalised, 24% is occupied by State bank of India and its associates. 17% by private banks indicating growth and financial stability. 5% of foreign banks have started operating in India
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Bank Consolidation Proposal by Arun Jaitley

Bank Consolidation Proposal by Arun Jaitley

Saravana Bhaskar
Union Finance Minister, Arun Jaitley and the RBI Deputy Governor SS Mundra were present at the 2nd Annual meeting of board of governors of the Asian Infrastructure Investment Bank(AIIB)  held at Sout...
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Ways To Eliminate Additional Costs In Your Company

There isn’t an idiom which is more relevant today than “A penny saved is a penny earned “ that is claimed to be quoted by Benjamin Franklin, a wise man! This sounds simple & benefits of implementing this are obvious, but studies have shown that a large number of businesses operating today are nowhere near maximising their cost saving opportunities.  Why is cost cutting important? This may seem like a fairly obvious question, however, there have been countless successful businesses that have failed because they let the costs of operating their business spiral out of control.  In fact, some of the biggest global corporate collapses have occurred due to this very reason. So, if it can happen to billion dollar corporate giants, it can also happen to small & medium business operations. It’s one of the main reasons why 80% of all businesses fail. Cost cutting can be a very quick way to boost your bottom line.Where do you start?Banking See if your banking & related costs are optimised.  It’s imperative to know if your bank is charging you right. Your interest rates on CC/Overdraft, FX, & trade fees- are they at par with what your industry peers pay?  Try identifying if your product mix is on the money & in line with what your business needs that could save you lots of money, adding to your bottom line. If possible, hire professional consultants who could handle this efficiently and stream line costs.Paying staff the right wayIs there a better way you can be rewarding your staff? A lot of business owners are now looking at restructuring the way they pay their staffs in order to reduce costs and provide greater incentive for greater output.  It’s a well known fact that sales staffs have been paid increased commissions based on increased sales for many years, but there are a growing number of astute business owners who are now starting to pay their other non-sales people based on the level of sales an organisation generates.  This has the effect of having everyone focused on increasing sales so it becomes a far greater team effort across the board.  Companies that have started to do this have noticed an increase in customer satisfaction levels, faster delivery times, more efficient debt collection procedures, greater efficiency in communications, a higher level of office morale and countless other benefits.Are you getting the best from your vendors When was the last time you sat down with them and attempted to negotiate better payment terms or an improved volume discount?  You should sit down on a regular basis and analyse all your suppliers.  Make sure you competitively quote your suppliers for everything your business needs.  You will be amazed how quickly people will negotiate with you.  Remember, it costs at least six times more to find a new client than it does to do business with an existing one.  Your suppliers know this and simply asking them for better terms or cheaper rates can save you a lot of money.Working Hours There are countless businesses that open too early or stay up too late just because that’s what everyone else is doing.  Have a closer look when you’re making the majority of your sales or when you receive most of your customer enquiries, (the daily journal in the Time Management section will help you to track this).  Once you have done this for a few weeks, it will become apparent that there are certain time periods that are costing you money simply to be open.  For a lot of retail stores this can be between 9 and 10 on a Monday or Tuesday morning.  Even if you reduced your work week by these two hours, that can result in significant savingsChoose the right business premisesWhere you choose to locate your business will have a major impact on your operating costs.  It is one of the most important things to consider, even if your business is well established.  When looking at locating or relocating your business it’s important to ask the following questions:Will customers be coming to the business or will I be going to them?If customers are visiting me, what impression do I want to create?Where do my customers come from?Do they need easy parking facilities?Do I need to be highly visible?Will I be employing staff?Is it easy for staff to find car parking or public transportation?How far away are your business premises from where you live?Does your business require partitioning? Offices? Storage space?Can you access your business premises after hours?What is your budget?How long is the lease for?What happens if I break the lease?Is it better to buy the business premises?When you’re thinking of locating your business you need to be very clear on all of the above questions.Small can be cumulatively big !Once you have had a close look at some of the major expenses in your business, it’s then time to have a very close look at minor expenses.  These are the incidentals you may be spending money on which your customers or people are indifferent to.  A lot of business owners spend money on incidental items that don’t really add any value to the business.  Have a look at the following list of items and ask yourself if they would really be missed if they disappeared from your business tomorrow.Magazines and newspapersExpensive tea and coffeeCouriers and express post servicesExpensive packagingWhat are some of the items in your business you could be living without?Similarly, have a closer look at various other operational costs that could be avoided without affecting the productivity or efficiency of the company. Always remember “A penny saved is a penny earned”.
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Ways To Eliminate Additional Costs In Your Company

Ways To Eliminate Additional Costs In Your Company

Kranthi Tilak Reddy
There isn’t an idiom which is more relevant today than “A penny saved is a penny earned “ that is claimed to be quoted by Benjamin Franklin, a wise man! This sounds simple & benefits of implemen...
Continue reading

RBI Refused to Attend Meetings with Center

The MPC(Monetary Policy Committee) is a council of six members that sets benchmark interest rates. Predecessor Raghuram Rajan was given full authority of setting interest rates, but many had opposed and new arrangements were made to set up MPC which is less than a year old now. It is appreciable RBI stood firm in its decision. The committee was questioned on the grounds that Rajan left due to undesirable circumstances and out of the blue event of withdrawing currency from circulation. November onwards, a series of unpleasant situations are being faced by the government.Federal Ministry of Finance decided for a meet at New Delhi and the members of MPC refused for it. MPC anyway knew they were called to cut rates. India was already facing a trouble tackling private sector investments. Yet the MPC had turned a deaf ear to participate in the meeting and kept the rates stable. The resolution stood strong even after inflation rates had fallen down. This emerges from the agreement between central bank and government to shift targeting consumer price inflation. The government is in a baffled situation from then.RBI has not completely ignored, inflation period from 6 months (April-September) consumer price inflation has been revised. It has witnessed sharp decline from 4.5% to between 2% and 3.5% lying below the target rate of 4%.Why the rates are not cut?There are two prominent reasons. Firstly, after the cash shortage there has been significant decrease in inflation rate. Demonetisation has its effects on prices of agricultural  goods, especially on the food staples that dominate India’s CPI , and now facing crash. Secondly, it is government’s duty to revive investment and not the job of MPC.Without dissembling and rather than meeting setups, other ministers are to be questioned about the slow pace of reforms.
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RBI Refused to Attend Meetings with Center

RBI Refused to Attend Meetings with Center

Saurabh Jain
The MPC(Monetary Policy Committee) is a council of six members that sets benchmark interest rates. Predecessor Raghuram Rajan was given full authority of setting interest rates, but many had opposed a...
Continue reading

Trade Receivables Discounting System (TReDS)

TReDS is an institutional setup for flow of finance to small ,micro and medium (MSME) enterprises at competitive rates through multiple financiers. TReDS are subjected to supervision by RBI and envisages its operation both in primary and secondary market segments. It majorly addresses the gaps in MSME ecosystem as the micro, small and medium enterprises faces challenges in getting their payments on time and thereby create working capital gaps. MSME also faces constraints on obtaining adequate finance in market place. This is an hindrance to drive MSMe sector to the next phase of economy. The existing few legal bindings have been not much effective to ensure timely payments and fairness in trade. Cash availability issues have been caused to the small sector units by big corporates, which depends to source a part of their products from MSME’s.To overcome this issue, RBI has proposed Trade Receivables Discounting System(TReDS) in March 2014 which is a digital platform wherein MSMEs can get access to cash. This plan was published taking into account the consultation of few stakeholders and interest of few entities.To set up electronic bill factoring exchanges, guidelines had been issued by RBI on December 3, 2014  related to Trade Receivable e-Discounting System (TReDS) regulated under the Payment and Settlement System (PSS) Act, 2007. WHAT IS TReDS?TReDS is basically an online process that allows the auctioning of trade receivables, also known as discounting bills. It fills the working capital demands. TReDS facilitate the financing of trade receivables through multiple financiers. This scheme discounts bills of exchanges as well as their invoices. Here, the seller gets credit which is due, and discount is the interest paid to the financier. They include buyers such as government bodies and public sector units who will be direct participants in TReDS. HOW DOES TREDS OPERATE ELECTRONICALLY?Micro,small and medium scale enterprises can upload the invoice on the electronic platform. It goes upto 750 INR for registration. It then goes digitally to buyers like big companies, or retailers like Honda, Mahindra, Tata etc for acceptance within a specified time. The financiers offer discounting rates to the buyers. The seller or the buyer bearing the interest rate gets to accept the final bid. TReDS does the final settlement and the amount gets credited the next working day into the seller’s account through corporates or banks. Later,the amount is repaid to the financer. The invoices cannot be bidden below the marginal cost of funds based lending rate(MCLR) set by the RBI. To ensure there is no window dressing TReDS may initiate random audits and check the authenticity and genuineness of the transactions.During the on boarding process entities are required to submit KYC related documents along with resolutions or specific documents to the authorised personnel of the buyer corporate. ID’s and passwords would be provided to the MSME seller. One time agreement would be drawn upon amongst the participants in TReDS. This is a master agreement where the where the buyer is obligated to pay on the due date once the factoring unit is accepted. To those disputes with respect to quality of goods  there would be no recourse provided and no set offs to be allowed.IMPORTANT PARTIES INVOLVEDAs of now, NSE Strategic Investment Corporation (NSICL) and Small Industries Development Bank (SIDBI)  , Axis bank  and Mynd solutions which runs no1 exchange has been licensed by the RBI. Receivables Exchange Of India Ltd (RXIL) has been furnished under the guidelines of RBI, it is a joint venture between SIDBI and NSE set up to operate a TReDS platform for factoring  of invoices of MSME’s. RXIL is the first one to get authorisation to launch the platform and also the first one to go live on January 9, 2017. These are expected to get MSME corporate buyers and banks together on the TReDS platform to facilitate a smoother flow of the processes.MAJOR BENEFITSTReDS benefits MSME sector by eliminating paperworks as they transact online. The other advantages include competitive discount rates, seamless data flow, standardised practices, important of all easy access to funds and  they work transparently..ISSUES FACED BY TReDSThe registration charges can discourage MSME  sectors by using the TReDS platform. All the transactions has to be approved and registered Central Registry Of Securitisation and Asset Reconstruction and Security Interest Of India. They also require KYC documents. Recommendations have been provided to involve wealthy individuals to expand markets as  TReDS require more entities as financiers. The concept is still incipient and the above three players are trying to pick out corporates and financiers to make this scheme a successful one. TReDS can take off successfully, if supported with a strong debt-recovery mechanism framework.  RBI has also sought  views on the concept paper of trade receivables discounting system in the country . Actionable feedback can be of some use.
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Trade Receivables Discounting System (TReDS)

Trade Receivables Discounting System (TReDS)

Saurabh Jain
TReDS is an institutional setup for flow of finance to small ,micro and medium (MSME) enterprises at competitive rates through multiple financiers. TReDS are subjected to supervision by RBI and envisa...
Continue reading

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