1. INTERNATIONALINTERNATIONAL BUSINESSBUSINESS

2. BANK GUARANTEEBANK GUARANTEE && FOREIGN EXCHANGEFOREIGN EXCHANGE REGULATIONSREGULATIONS 3. Definition of 'Bank Guarantee'Definition of 'Bank Guarantee' A guarantee from a lending institutionA guarantee from a lending institution ensuring that the liabilities of a debtor willensuring that the liabilities of a debtor will be met. In other words, if the debtor fails tobe met. In other words, if the debtor fails to settle a debt, the bank will cover it.settle a debt, the bank will cover it. 4. Bank GuaranteeBank Guarantee A bank guarantee is a guarantee made by aA bank guarantee is a guarantee made by a bank on behalf of a customer (usually abank on behalf of a customer (usually a corporate customer) should fail to deliver thecorporate customer) should fail to deliver the payment, essentially making the bank a co-payment, essentially making the bank a co- signer for one of its customers purchases.signer for one of its customers purchases. Bank guarantee is an important commercialBank guarantee is an important commercial instrument used to minimise the risk that areinstrument used to minimise the risk that are involved in commercial contracts.involved in commercial contracts. 5. Types of Bank GuaranteeTypes of Bank Guarantee 1.1. Tender Guarantee (also called Bid Bond)Tender Guarantee (also called Bid Bond) This is usually issued for an amountThis is usually issued for an amount equal to between 1 and 2 percent of theequal to between 1 and 2 percent of the contract value. It gives the employercontract value. It gives the employer compensation for additional costs if the partycompensation for additional costs if the party submitting the tender does not take up thesubmitting the tender does not take up the contract and it must be awarded to anothercontract and it must be awarded to another party.party. 6. 2.Performance Guarantee2.Performance Guarantee Normally issued for an amount equal toNormally issued for an amount equal to between 5 and 10 percent of the contactbetween 5 and 10 percent of the contact value, this guarantee assures payment tovalue, this guarantee assures payment to the employer in the event that the contractorthe employer in the event that the contractor fails to fulfil contract obligations.fails to fulfil contract obligations. 7. 3.Payment Guarantee3.Payment Guarantee This is used as security forThis is used as security for payment obligations. It is also referred to aspayment obligations. It is also referred to as a Standby Letter of Credit.a Standby Letter of Credit. 4.Facility Guarantee4.Facility Guarantee This is normally not trade related. ItsThis is normally not trade related. Its purpose is to provide security to anotherpurpose is to provide security to another bank to advance money to an individual orbank to advance money to an individual or company. It is often used when a companycompany. It is often used when a company does not have any credit record and wishesdoes not have any credit record and wishes to expand offshore.to expand offshore. 8. 5.Maintenance Guarantee5.Maintenance Guarantee This ensures that the contactorThis ensures that the contactor does not abandon the contract afterdoes not abandon the contract after completion of the construction phase, butcompletion of the construction phase, but continues to honour any maintenancecontinues to honour any maintenance obligations as per the original agreement.obligations as per the original agreement. 9. FERAFERA A legislation passed by the IndianA legislation passed by the Indian Government in 1973 by the Government ofGovernment in 1973 by the Government of Indira Gandhi and came in to force with effectIndira Gandhi and came in to force with effect from 1from 1stst January, 1974.January, 1974. FERA imposed stringent regulation on certainFERA imposed stringent regulation on certain kinds of payments, the dealings in foreignkinds of payments, the dealings in foreign exchange and securities and transactionsexchange and securities and transactions which had an impact on foreign exchange andwhich had an impact on foreign exchange and import and export of currency.import and export of currency. 10. Features:Features: Regulated in India by the Foreign ExchangeRegulated in India by the Foreign Exchange Regulation Act (FERA), 1973.Regulation Act (FERA), 1973. It consist 81 sections.It consist 81 sections. FERA emphasized strict exchange control.FERA emphasized strict exchange control. Control everything that was specified, relatingControl everything that was specified, relating to foreign exchange.to foreign exchange. Law violators were treated as criminalLaw violators were treated as criminal offenders.offenders. Aimed at minimizing dealings in foreignAimed at minimizing dealings in foreign exchange and foreign securities.exchange and foreign securities. 11. Objectives:Objectives: To regulate certain payments.To regulate certain payments. To regulate dealings in foreign exchange andTo regulate dealings in foreign exchange and securities.securities. To regulate transactions indirectly affectingTo regulate transactions indirectly affecting foreign exchange.foreign exchange. To regulate import and export of currency.To regulate import and export of currency. To regulate holding of immovable propertyTo regulate holding of immovable property outside India.outside India. 12. To regulate employment of foreign Nationals.To regulate employment of foreign Nationals. To regulate acquisition, holding, etc ofTo regulate acquisition, holding, etc of immovable property in India by non-residents.immovable property in India by non-residents. To regulate foreign companies.To regulate foreign companies. 13. Provisions:Provisions: Regulation of dealings in foreign exchange.Regulation of dealings in foreign exchange. Restriction on payment.Restriction on payment. Restrictions regarding assets held by non-Restrictions regarding assets held by non- residents and Import and Export of certainresidents and Import and Export of certain currency.currency. Data of persons entitled to receive foreignData of persons entitled to receive foreign exchange and payment for exported goods.exchange and payment for exported goods. 14. Restrictions on appointment of certain personsRestrictions on appointment of certain persons and companies as agents or technical orand companies as agents or technical or management advisers in India.management advisers in India. Restrictions on establishment of place ofRestrictions on establishment of place of business in India.business in India. Prior permission of RBI required for taking upPrior permission of RBI required for taking up employment in India by Nationals of foreignemployment in India by Nationals of foreign state.state. Restrictions on immovable property.Restrictions on immovable property. 15. FEMAFEMA TheThe Foreign Exchange ManagementForeign Exchange Management ActAct(FEMA) was an act passed in the winter(FEMA) was an act passed in the winter session of Parliament in 1999 which replacedsession of Parliament in 1999 which replaced Foreign Exchange Regulation ActForeign Exchange Regulation Act.. This act seeks to make offenses related toThis act seeks to make offenses related to foreign exchange civil offenses. It extends toforeign exchange civil offenses. It extends to the whole of India.the whole of India. 16. FEATURES:FEATURES: Activities such as payments made to anyActivities such as payments made to any person outside India or receipts from them,person outside India or receipts from them, along with the deals in foreign exchange andalong with the deals in foreign exchange and foreign security is restricted.foreign security is restricted. It is FEMA that gives the central governmentIt is FEMA that gives the central government the power to impose the restrictions.the power to impose the restrictions. Restrictions are imposed on people living inRestrictions are imposed on people living in India who carry out transactions in foreignIndia who carry out transactions in foreign exchange, foreign security or who own or holdexchange, foreign security or who own or hold immovable property abroad.immovable property abroad. 17. - Without general or specific permission of- Without general or specific permission of the Reserve Bank of India, FEMA restrictsthe Reserve Bank of India, FEMA restricts the transactions involving foreign exchangethe transactions involving foreign exchange or foreign security and payments fromor foreign security and payments from outside the country to India theoutside the country to India the transactions should be made only throughtransactions should be made only through an authorised person.an authorised person. - Deals in foreign exchange under the- Deals in foreign exchange under the current account by an authorised person cancurrent account by an authorised person can be restricted by the Central Government,be restricted by the Central Government, based on public interest.based on public interest. 18. Although selling or drawing of foreignAlthough selling or drawing of foreign exchange is done through an authorisedexchange is done through an authorised person, the RBI is empowered by this Act toperson, the RBI is empowered by this Act to subject the capital account transactions to asubject the capital account transactions to a number of restrictions.number of restrictions. People living in India will be permitted to carryPeople living in India will be permitted to carry out transactions in foreign exchange, foreignout transactions in foreign exchange, foreign security or to own or hold immovable propertysecurity or to own or hold immovable property abroad if the currency, security or propertyabroad if the currency, security or property was owned or acquired when he/she waswas owned or acquired when he/she was living outside India, or when it was inherited toliving outside India, or when it was inherited to him/her by someone living outside India.him/her by someone living outside India. 19. - Exporters are needed to furnish their export- Exporters are needed to furnish their export details to RBI. To ensure that the transactionsdetails to RBI. To ensure that the transactions are carried out properly, RBI may ask theare carried out properly, RBI may ask the exporters to comply to its necessaryexporters to comply to its necessary requirementsrequirements 20. ReferencesReferences Business environmentBusiness environment -- AswathappaAswathappa International businessInternational business -- Subba RaoSubba Rao International trade financeInternational trade finance -- Paul CowdellPaul Cowdell Derek HydeDerek Hyde