Currency Forward Contract | Definition, Booking, Cancellation & Basic Requirements

Currency Forward Contract | Definition, Booking, Cancellation & Basic Requirements

What Is a Currency Forward Contract?

A currency forward contract can be defined as buying or selling a specific currency at a specified future price for delivery on a specified future date.

Who Can Book a Currency Forward Contract?

Any importer or exporter having exposure to foreign currency can book a forward contract with its bank based on underlying (purchase order or pro forma invoice) to hedge his currency movement risk.

How to Book a Currency Forward Contract?

Step 1: On request, the bank set up a forward booking limit on behalf of its client. To set up the forward booking limit bank demands a fixed deposit of approx. 5% of your total booking requirements in the INR term. For example, if you want to book USD100000 then you will have to produce a fixed deposit of Rs. 375000.00 to your bank (considering USD/INR at 75.00). If you are a credit customer then the bank may also set up the limit based on your collateral mortgaged with the bank.

Step 2: You must produce an underlying (valid purchase order or pro forma invoice) mentioning the delivery and payment terms before your bank to book a currency forward contract.

Step 3: The Bank gives you a forward rate and with your consent, book the same. For example, if you want to book USD 100000 for delivery after the end of 3 months. Considering the current USD to INR spot rate of 75.00, the bank may give you a forward rate of 75.90. Here 0.90 is the premium for three months. Please note that exporters get the benefit of premium and importers have to pay the premium because USD is almost on premium in comparison to INR. You may refer to ibrlive.com for live forward rates.

Step 4: On successful booking of the contract bank agrees, generally on a 100 Rs. Stamp paper. The agreement contains all details of the contract and it is signed by both the bank and the client.

How Currency Forward Contracts Are Utilized?

On successful arrival of payment against export or sending the payment for import on the maturity date of the forwarding contract, the bank gives you the same rate which was booked earlier under the forwarding contract irrespective of the current spot rate on the maturity date.

A forward contract can be utilized for other payments irrespective of the underlying (purchase order or pro forma invoice) on behalf of which it was booked.

Early utilization of forwarding contracts is also possible if your payment has come earlier than the expected date.

Where to Check Exact Forward Premiums and Forward Rates?

Many websites show the month-wise or broken date forward rates for a subscription basis. You may refer to ibrlive.com to know the exact premiums and final forward rate, even for broken dates.

Advantages of Currency Forward Contract

For importers & exporters, the main advantage of booking a currency forward contract is to hedge their foreign currency exposure from adverse movements.

Exporters booking a forward contract for USD to INR, EUR to INR, GBP to INR or any major currency get the benefit of a premium added to the present spot rate.

Can I Cancel a Forward Contract?

Yes, the forward contract can be cancelled on the maturity date or 3 days after the maturity date. Cancellation is done on a spot rate and any profit or loss will be passed on to the customer if the same is cancelled on or before the maturity date.

If the forward is cancelled any day between the 3 days grace period, then the profit will not be passed on to the customer but any loss will be recovered from his account.

A forward contract can also be cancelled before the maturity date. Apart from profit & loss calculation from spot day, the client will also have to forgo extra premium from the date of cancellation to maturity.

10 powerful strategies of booking currency forward contract for exporters

10 powerful strategies of booking currency forward contract for exporters

Booking a currency forward contract hedges your adverse currency movement risk, but by adopting the following strategies you may earn good profits out of it.

Always book partial exposure:

Booking a partial exposure is always a good idea. For example, if you are expecting an inward payment of USD 100000 then you may book 50% of your exposure i.e. USD 50000, and keep USD 50000 open.

This strategy will balance your currency exchange rate. If the current spot rate on the date of payment is above your booking rate then you have another USD 50000 to get that rate and vice versa.

 

Booking heavily when domestic currency has depreciated a lot recently:

If the domestic currency (INR) has depreciated a lot(more than 2% to 5%) recently, you should book your upcoming & future exposure.

For Example, if the USD/INR pair has recently moved to 75 from 72 Rs. In this case, the domestic currency INR has depreciated by almost 4% and is supposed to appreciate in the future or will depreciate by a marginal amount.

So, booking most of your exposure for up to six months in that scenario is advisable.

 

Booking a little less than your expected payment:

If you are expecting a payment of USD 100000 then most likely you will receive a little less because of correspondent bank charges.

You may receive an amount of USD 99950 in your bank’s Nostro account. So if you are planning to book the entire exposure then always book USD 500 less than your expected payment to avoid cancellation of the extra amount and charges thereon.

 

Check the exact premium before booking a currency forward contract:

You should check the exact premium before booking a contract so that you get exactly what is available in the market. You may refer to currency websites like ibrlive.com which displays the live forward rates.

 

Always opt for a one-month window:

For example, if you are booking a USD to INR forward contract for USD 100000 for a maturity on 20.09.2021 then you should ask your bank to provide a complete month window. You will get a window of one month starting from 20.09.2021 to 19.10.2021.

Please note that this window is provided because sometimes foreign payments can be delayed due to any reason. You will get a premium only till the start date i.e. 20.09.2021 but all your inward payments up to USD 100000 from 20.09.2021 till 19.10.2021 can be converted on the booking rate.

 

Never do booking more than your currency exposure:

For example, if you are expecting a payment of USD 100000 and you are finding the rate very attractive, never book more than your expected payment. Because no one can predict currency movements. In case of adverse movement, you may lose money for cancellation of the extra booking.

 

Book continuously:

Booking continuously is another good practice to follow. Booking currency forward contracts regularly helps to balance your currency rate.

 

Booking immediately after receiving the purchase order:

One should book immediately a partial amount of the contract after receiving the purchase order. This helps you prevent losses on account of adverse movement.

 

Book for a shorter duration when expecting an appreciation in domestic currency:

if you are expecting a depreciation in domestic currency in a short span then you should book contracts for a shorter duration like for 15 days to 1 month.

 

Book for a longer duration when expecting a depreciation in domestic currency:

If you are expecting an appreciation in domestic currency then you should book contracts for a longer duration like for 2 months to 6 months.

 

So by following the above strategies, you may hedge currency exposure along with saving extra money. Please note that you should not completely rely on the above strategies as it is the author’s view. You may follow your strategies as well to form the right decision.

Tax collected at source (TCS) on remitting money abroad under liberalized remittance scheme (LRS)

Tax collected at source (TCS) on remitting money abroad under liberalized remittance scheme (LRS)

The tax collected at source (TCS) on remitting money abroad under a liberalized remittance scheme (LRS)

What is TCS?

Tax Collected at source is the excess amount collected in the form of tax by the seller of goods from the buyer at the time of selling of goods over and above the sale price. Collected Tax then remitted to the government value.

Is TCS applicable on foreign remittances? – Yes, as per section 206C(IG) of the Income Tax Act, 5% TCS is applicable on sending money out of India for more than Rs.7 lakhs in a financial year under the Liberalised Remittance Scheme of RBI. In the absence of Aadhaar or PAN while remitting money abroad, 10% TCS is charged by authorized dealers. This rule has been affected since Oct 1, 2020.

Are different overseas transactions eligible for TCS? – All permitted current & capital account transactions for individuals under LRS will attract TCS of 5% if the remittance amount is equal to or more than 7 lac rupees. All such remittances on which TCS is applicable are detailed below:

  1. Current Account Remittances:
  • Money sent for overseas education
  • Money sent for Gifts & Donations
  • Money sent for medical treatment abroad
  • Money sent for family maintenance
  • Money loaded & reloaded in travel card (Forex Card)

 

  1. Capital Account Remittances:
  • Loan to relatives
  • Investment in overseas shares & mutual funds
  • Investment in properties abroad

Please note that TCS(tax collected at source) at only 0.50% will be applicable for money sent for education purposes out of education loans taken from any financial institute. For example, if money remitted is Rs. 10 lacs out of an education loan taken from the bank, then TCS will be applicable at 0.50% on Rs. 3 lacs (Up to Rs. 7 Lacs TCS is not applicable) which comes to Rs. 1500/-.

Please also note that a limit of Rs. 7 lacs is for the entire financial year. For example, a person sends CAD 10000 (Rs. 6 Lacs at a conversion rate of Rs. 60 per CAD) from India to his son living in Canada on 05.04.2023 and sends CAD 10000 (Rs. 6 Lacs at a conversion rate of Rs. 60 per CAD) again on 10.10.2023 in the same financial year, then a TCS of 5% will be applicable on Rs. 5 Lacs (Total money sent Rs. 12 lacs, free limit Rs. 7 lacs, Taxed amount Rs.5 lacs.) which comes to Rs. 25000/-

Is TCS applicable for the import & export of goods & services?

No, TCS is not applicable for the import & export of goods & services. TCS(tax collected at source) is also not applicable for overseas direct investment in joint ventures & wholly owned subsidiaries by private limited companies, limited companies, LLPs & registered partnership firms.

Is TCS also applicable on overseas tour packages?

Yes, TCS( tax collected at source) at 5% is applicable on overseas tour packages and there is no free limit of Rs. 7 lacs. Any tour & travel operator should collect TCS at 5% from the buyer of the overseas tour package regardless of the amount of the package.

Can I claim a refund for TCS?

Yes, the amount paid by the buyer of foreign exchange by way of TCS will be reflected in his 26AS statement after the seller files his TCS(The tax collected at source) Return. Buyer can claim the refund while filing an income tax return in case the buyer does not any tax liability. Thus, the TCS amount will be refunded after filing of Income Tax Return.

The latest changes in the TCS slab were announced by Hon’ble Finance Minister Nirmala Sitharaman in the union budget 2023-24 on 1st Feb 2023. Please note that all the changes mentioned below will become effective from 1St July 2023.

  • 20% TCS will be applicable for all overseas remittances except for education & medical expenditures that too without any threshold limit of 7 lacs.
  • Remittances under a liberalized remittance scheme for family maintenance and GIFT, Investment in shares, properties & mutual funds will attract a flat TCS rate of 20% irrespective of the amount of transaction.
  • Remittances for overseas education & medical treatment are kept the same as previously with only 5% TCS over 7 lacs of the transaction amount.
  • Overseas tour packages will now become costlier as the TCS limit has been increased to 20% irrespective of the amount from 5% earlier.

 

Let us understand this with the help of the table given below:

Nature of Overseas Transaction Existing TCS Rate New TCS Rate (with effect from 1st July 2023)
Remittance for education 5% on the amount over Rs. 7 Lakh Unchanged
Remittance for education (Where the source of funds is an education loan) 0.50% on the amount over Rs. 7 Lakh Unchanged
Remittance for family maintenance, GIFT, Investment in shares, properties & mutual funds 5% on the amount over Rs. 7 Lakh 20% without any threshold
Overseas tour package 5% without any threshold limit 20% without any threshold

 

 

 

 

 

 

 

 

Unveiling the Best Dollar to Rupee Live Rates with IBRLive: A Comprehensive Review

Unveiling the Best Dollar to Rupee Live Rates with IBRLive: A Comprehensive Review

In today’s interconnected global economy, staying updated with live currency exchange rates is paramount, especially when dealing with the ever-fluctuating dynamics between the US dollar and the Indian rupee. For those seeking real-time insights into the dollar to rupee live exchange rate, IBRLive emerges as the ultimate solution, offering unparalleled accuracy and reliability without the dreaded 60-second delay commonly found elsewhere.

Dollar to Rupee Live Rates: Their Significance

For those involved in global trade, investments, and financial transactions, both individuals and businesses, the dollar to rupee live exchange rate is crucial. One of the most frequently traded currency pairs worldwide, changes in the USD/INR rate can have a significant impact on several different economic sectors.

  1. International Trade:

For businesses involved in importing and exporting goods and services between the United States and India, the dollar to rupee live exchange rate directly impacts the cost of transactions. A favorable exchange rate can enhance competitiveness in international markets, while unfavorable rates may lead to increased costs and reduced profitability.

  1. Investment Opportunities:

Investors and financial institutions closely monitor the dollar to rupee exchange rate to identify lucrative investment opportunities. A strengthening rupee relative to the dollar may attract foreign investment inflows into India, stimulating economic growth and capital formation. Conversely, a depreciating rupee may prompt investors to reconsider their investment strategies and asset allocation.

  1. Economic Indicators:

A vital sign of the general stability and well-being of the Indian economy is the exchange rate between the US dollar and the Indian rupee. To evaluate variables like inflation, trade balances, the efficacy of monetary policy, and external vulnerabilities, central banks, decision-makers, and market analysts examine changes in exchange rates. Variations in the USD/INR exchange rate can impact macroeconomic policies and forecasts.

IBRLive: Your Trusted Source for Real-Time Exchange Rates(dollar to rupees exchange rate live

In the dynamic landscape of currency markets, having access to live exchange rates is essential for making informed decisions and managing currency-related risks effectively. IBRLive emerges as the preferred choice for individuals and businesses seeking reliable and accurate dollar to rupee live rates.

IBRLive sets itself apart by providing live currency exchange rates without any 60-second delay, ensuring users have access to the most current and accurate information at their fingertips. With IBRLive, you can make informed decisions swiftly, reacting promptly to market fluctuations and maximizing your financial outcomes.

With IBRLive users benefit from:

Instant Updates:

Stay updated with real-time exchange rate fluctuations, enabling timely decision-making and execution of currency transactions.

User-Friendly Interface:

IBRLive’s intuitive platform provides easy navigation and access to a wealth of currency-related information, empowering users to track exchange rates effortlessly.

Comprehensive Coverage:

IBRLive offers coverage of a wide range of currency pairs, including the dollar to rupee (USD/INR) pair, ensuring users have access to the latest exchange rate data for their currency needs.

Reliability and Accuracy:

IBRLive prides itself on delivering accurate and reliable exchange rate information, with no 60-second delay, allowing users to trust the data and insights provided.

Customizable Features:

IBRLive offers customizable features such as rate alerts, historical data analysis, and currency conversion tools, catering to the diverse needs of individual users and businesses.

 

 Introducing Fxpress Standard: Your Gateway to Live Interbank Exchange Rates(dollar to rupees exchange rate live)

 At the core of IBRLive’s offerings lies Fxpress Standard, a robust product designed to meet the diverse needs of individuals and businesses alike. Let’s delve into some of its key features:

Live Interbank Exchange Rates:

Fxpress Standard offers access to real-time interbank exchange rates, allowing users to track the dollar to rupee live rates with unparalleled precision.

Cash Tom Spot Rates:

Stay updated with cash Tom Spot rates, facilitating seamless transactions and reducing uncertainty in currency exchanges.

Monthly & Broken Date Forward Rates:

Plan and mitigate risks by accessing monthly and broken date forward rates, empowering you to make strategic financial decisions.

Currency Forecast:

Gain valuable insights into future currency trends with Fxpress Standard’s currency forecasting capabilities, enabling proactive decision-making.

Currency Calculator:

Calculate conversions effortlessly with IBRLive’s intuitive currency calculator, simplifying complex currency exchanges.

Historical Rates:

Access historical exchange rate data to analyze trends and effectively inform your future strategies.

Day Opening and Closing SMS:

Receive timely notifications regarding day opening and closing rates via SMS, ensuring you’re always in the loop.

Forward Contract Management Tool:

Manage forward contracts efficiently and mitigate currency risk with IBRLive’s comprehensive management tool.

Rate Alert (New):

Set personalized rate alerts and receive notifications when your desired exchange rate is reached, empowering you to seize favorable opportunities.

RPC & PCFC Management Tool:

Streamline RPC (Resident Foreign Currency) and PCFC (Pre-Shipment Credit in Foreign Currency) management with IBRLive’s dedicated tool, optimizing your financial operations.

One-Time FX Rate Negotiation with the Bank:

Simplify negotiations with banks by leveraging IBRLive’s one-time FX rate negotiation feature, ensuring favorable terms and conditions.

RPC & PCFC ROI Negotiations:

Maximize returns on RPC and PCFC investments through effective negotiations facilitated by IBRLive’s expertise and insights.

Full-Year Professional Consultancy:

Benefit from full-year professional consultancy services, guiding you through complex currency exchange scenarios and optimizing your financial strategies.

Conclusion

In conclusion, IBRLive stands as the epitome of reliability and accuracy in live currency exchange rates, offering users access to real-time information without the 60-second delay typically encountered elsewhere. With Fxpress Standard, users access a comprehensive suite of features designed to streamline currency exchange processes and optimize financial outcomes.

Whether you’re seeking to make timely currency conversions or a business looking to hedge against currency risks, IBRLive and Fxpress Standard provide the tools and insights necessary to navigate the complex world of currency exchange with confidence and precision. Choose IBRLive today and experience the difference firsthand.

 

How to Avoid Paying Takeover Charges When Switching Banks?

How to Avoid Paying Takeover Charges When Switching Banks?

 

In the realm of corporate financial consultancy, one unfortunate trend persists within the Indian banking culture. When corporate clients decide to shift their credit facilities to another bank for better services and competitive pricing, their existing bankers often resort to threatening tactics by imposing heavy foreclosure charges, takeover charges and prepayment penalties. This practice poses a significant hurdle for clients seeking to switch to a new banking relationship. There is no such RBI notification on foreclosure charges for MSME customers, but the notification is for waiver of foreclosure charges for individual customers only.

However, IBRLive India Private Limited, a prominent player in the field, offers a solution to this predicament. By advocating for clients and writing to nodal offices and regulatory bodies such as the Reserve Bank of India (RBI), IBRLIVE helps waive off these charges, facilitating a seamless transition for clients while saving them substantial amounts of money.

Understanding the Banking Dilemma: The process of shifting credit facilities from one bank to another involves numerous complexities and efforts from both the customer and the prospective new bank. However, the existence of foreclosure charges imposed by the current banker often deters clients from making this transition. These charges, intended to dissuade clients from moving their accounts, create an unfavorable environment where customers feel trapped with their existing bank despite subpar services and non-competitive pricing.

Challenges Faced by Clients:

  1. Financial burden: Heavy foreclosure charges can be a significant burden on corporate clients, especially when they are already looking to switch banks due to financial constraints or unfavorable terms with their current bank.
  2. Lack of competitiveness: Staying with an underperforming bank often means enduring high interest rates, limited credit options, and inadequate customer service, preventing clients from optimizing their financial strategies.
  3. Opportunity cost: By sticking with an unproductive banking relationship, clients miss out on the potential benefits offered by other banks, such as lower interest rates, improved terms, and more favorable lending options.

IBRLIVE: Empowering a Smooth Transition: IBRLIVE India Private Limited, renowned for its expertise in corporate financial consultancy, steps in to alleviate the challenges faced by clients intending to switch banks. By employing their in-depth knowledge of banking regulations, industry practices, and the legal landscape, IBRLIVE assists clients in navigating the complexities of the transition process without incurring foreclosure charges.

Services Offered by IBRLIVE:

  1. Advocacy and representation: IBRLIVE acts as a representative on behalf of clients, advocating for their rights and interests. They engage with nodal offices and regulatory authorities, such as the RBI, to highlight the unethical practice of imposing heavy foreclosure charges and the adverse impact it has on clients and the banking sector as a whole.
  2. Expert consultation: IBRLIVE provides clients with personalized and comprehensive consultation services, guiding them through the intricacies of the transition process. Their team of experienced professionals ensures clients are well-informed about their options, rights, and legal safeguards.
  3. Negotiation and resolution: IBRLIVE initiates dialogue with clients’ existing bankers, emphasizing the unjust nature of foreclosure charges and seeking a resolution that benefits both parties. Through negotiation and strategic communication, they strive to secure waivers or reductions in these charges, ultimately enabling a seamless transition to the new banking relationship.

Benefits of Partnering with IBRLIVE:

  1. Financial savings: By successfully waiving off foreclosure charges, IBRLIVE helps clients save substantial amounts of money during the transition process. These savings can be directed towards business expansion, investments, or other areas that contribute to their overall growth and success.
  2. Enhanced competitiveness: IBRLIVE enables clients to break free from uncompetitive banking relationships, empowering them to explore more favorable terms, competitive pricing, and superior services offered by new banks. This fosters an environment conducive to their financial objectives and future endeavors.
  3. Streamlined transition: With IBRLIVE’s expertise and support, the transition to a new banking relationship becomes smooth and hassle-free. Clients can focus on their core business activities, confident that the complexities of the process are being efficiently handled by experienced professionals.

Conclusion: The banking culture in India often presents a significant hurdle for corporate clients looking to switch their credit facilities to new banks. The threat of heavy foreclosure charges imposed by existing bankers creates an environment where clients feel compelled to stay, even when confronted with inadequate services and non-competitive pricing. IBRLIVE India Private Limited, a corporate financial consultancy, aims to break this pattern by advocating for clients and facilitating a smooth transition process without incurring foreclosure charges. Through their expertise, negotiation skills, and representation, IBRLIVE empowers clients to explore better banking options, save money, and unlock their full financial potential.

Visit https://ibrlive.com or contact us if you are also under the dilemma of shifting to a new bank but afraid of the foreclosure threats by your existing bank.