forex and international

The foreign exchange market is a global decentralized market for trading of currencies. The main participants in this markets are the large international banks. Locally the foreign exchange market works through financial institutions who are involved in large quantities of foreign exchange trading.

Purchase/Sale Foreign Currency Notes

Purchase of foreign currency in cash for individuals, residents and non-residents.

Sale of foreign currency in cash for national currency to resident individuals.

Accepting foreign bank notes.

Conversion (exchange) of foreign currency in cash.

Advantages at Bank BIC Namibia Limited

Competitor rates

Informational support and maintenance of each customer.

Foreign Exchange Incoming Payment Order (IPO’s)

The payment order for the certain amount of money to be credited to a specified account of the beneficiary received from foreign bank in a foreign currency. Inward transfer is the safe, convenient and cost-effective way of moving money to the beneficiary account.

An incoming Payment Order (IPO) is sent by foreign bank from outside the CMA to a local Beneficiary either in a foreign Currency or in NAD and sometimes in ZAR.

Advantages

It is a secure form of payment

It is convenient and fast

Funds received are available immediately or on value date

IPO receipt in foreign Currency for Bank Bic Client with NAD Account

IPO receipt in Foreign Currency for Non-Bank Bic Client

Foreign Exchange Outgoing Payment Order (OPO’s)

A payment order for a certain amount of money sent to a foreign bank in a foreign currency or in foreign currency to a domestic bank on the basis of the ordering customer’s instruction.

An outgoing payment order is when Bank BIC Namibia Limited’s customer has purchased or sourced a service or product from an international exporter. Payment must be made to the supplier via Bank BIC Namibia Limited to the overseas beneficiary bank.

Advantages

It is a secure form of payment

It is convenient and fast

Funds sent are available after 3 working date or on value date

Documentary Remittances

In foreign trade, the documentary remittance is type of payment where:

  • The payment occurs in the place where the buyer is located.
  • The seller gives the documentary remittance.
  • The bank has no obligation to certify the legal validity for the documents.
  • The seller has to pay all the cost unless otherwise mentioned in the contract.

Using a documentary remittance, the seller authorises the bank to present forwarding and transportation documents to the buyer, after the contractually agreed payment has been made.

Benefits

For the buyer: Payment is made only upon delivery of goods by the seller and presentation of the required documents in the bank.

For the seller: Forwarding documents are made available to the buyer only after the payment has been effected.

Export letter of Credit (ELC)

A method of payment commonly used in International trade transactions, whereby the advising bank facilitates payment to the exporter, provided the exporter complies with the terms and conditions of the letter of credit.

Export Letter of Credit carry the credit risks of the issuing bank and the political risks of the issuing bank’s country. A letter of credit may also be referred to as a documentary credit.

Features

Irrevocable letter of credit may not be cancelled or changed without any consent of all parties involved (importer, exporter and the issuing bank).

It is payable upon presentation of certain documents.

It can be transferred to a third party if stipulated in the letter of credit.

Benefits

Namibian exporter is assured of receiving payment if it complies with all terms and conditions of the letter of credit.

Exporter relies upon the creditworthiness of the issuing bank.

Exporter may offer extended terms of payment through a letter of credit.

Types of letter of credit

Sight – payment made to the seller when the required documents have been submitted to the authorized bank.

Deferred – the payment to the seller cannot be made when the documents are submitted, but instead at the later time “usance” LC).

Acceptance – the seller can request the bank to discount the bill of exchange.

Negotiable credit – Negotiation of advancing payment to the beneficiary on or before reimbursement date, on presentation of documents to the exporter’s bank.

Import letter of Credit (ILC)

An Import letter of Credit is an undertaking issued by the buyer’s bank to pay a specified sum of money to the seller, provided credit conform documents evidencing to the supply of goods described, are presented.

An Import Letter of Credit can be used as a means for financing import transactions (purchase of goods and /or services). It also minimises risks associated with the transaction.

Features

Irrevocable letter of credit may not be cancelled or changed without any consent of all parties involved (importer, exporter and the issuing bank).

It is payable upon presentation of certain documents.

It can be transferred to a third party if stipulated in the letter of credit.

Benefits

Mitigate risks in international trade when the parties to the transaction have new and untested business relation.

The seller may request 100% letter of credit instead of advance payment.

The bank that has issued the letter of credit has an obligation to pay, when credit conform documents are presented to the bank. The issuing bank will effect payment even if the buyer defaults and is unable to meet their payment obligations.

Types of letter of credit

Import /Export – The same credit can be termed an import or export LC depending on whose perspective is considered.

Revocable LC – The buyer and the bank that established the LC are able to manipulate the LC or make corrections without informing or getting permission from the seller.

Irrevocable LC – Any changes /amendment or cancellation can be done through the issuing bank, must be authenticated and approved by beneficiary.

Confirmed LC

Unconfirmed LC

Customer Foreign Currency Account

A Customer Foreign Currency Account, is a useful mechanism for managing the flows of foreign currency.

Customer Foreign Currency account also Called CFC Account for Companies active in the international market, be it trade or for the provision of services. CFC accounts are held for Importers and exporters for the movement of goods only.

Service providers associated with import and export transactions, are namely ships agents, freight forwarders, marine insurance brokers, tour operators, and entities with similar business operations.

Purpose

Denominated in a foreign currency.

Conducted in the books Bank BIC Namibia Limited.

Forward exchange contracts (FEC)

Forward exchange contracts are used to secure a rate today for settlement at some time in the future, usually longer than two business days. Methods of delivery that can take place with a FEC are:

Early delivery – When forward exchange contract is used before the maturity date of a fixed contract or during the fixed period of a partially optional contract. Delivery will take place on a ‘swap’ basis.

Extension – When forward exchange contract is used before the maturity date of a fixed contract or during the fixed period of a partially optional contract. Delivery will take place on a ‘swap’ basis.

Cancellations: When an importer is unable to use the forward exchange contract. If an order is cancelled, the forward exchange contract must be cancelled at the prevailing spot exchange rate, which can result in financial loss.

Types of Cover

There are two distinct 'legs' in any NAD/foreign currency deal. The importer/exporter can cover either one of the two legs of the transaction, or both of them, depending on the client’s view of the currency market.

The customer can opt for:

  1. Foreign currency / Namibia dollar cover.
  2. Rand/Namibia dollar cover.
  3. Rand/any other foreign currency cover.

FEC – Advantages

They cater for a diverse type of commercial and financial transactions and both importers and exporters can make use of it.

The company is protected against unfavourable exchange rate fluctuations.

Budgeting and costing are accurate.

FEC – Disadvantages

Once a customer has covered a transaction with forward exchange contract, it cannot take advantage of any favourable exchange rate movements.

Early deliveries, extensions and cancellation during the fixed period of the foreign exchange contract can result in a financial loss.

The period of cover should not exceed 12 months at a time. Documentary evidence is needed to establish the FEC.