Internship Report

On Foreign Exchange System of Mercantile Bank Limited

Prepared for Mr. Riad Hassan Senior Lecturer School of Business Studies Southeast University

Prepared by Md. Jahidul Islam ID# 2006110000033 Batch # 13th (Finance) BBA Southeast University

Date of Submission:

June, 2010

FOREIGN EXCHANGE SYSTEM OF MERCANTILE BANK LIMITED

Letter of Transmittal
June, 2010 Mr. Riad Hassan Senior Lecturer School of Business Studies Southeast University Banani, Dhaka-1213 Subject: Submission of Internship Report. Dear Sir, It is an honor to submit the report of my 3 months long Internship Program in the Mercantile Bank Limited, Uttara Branch. The report titled is, Foreign Exchange System of Mercantile Bank Limited is the final outcome of successful completion of my internship program at the bank. In this endeavor, this report seeks to identify and recommend the prospects for the Bank in that particular market. The report contains eight chapters the first two chapters contain an overview of the host organization and rest of the chapters contain the findings and recommendations. It has been a joyful and enlightening experience for me to work in the organization of my likings and prepare this report. It would be my immense pleasure if you find this report useful and informative to have an apparent perspective on the issue. Please feel free to contact me if you have any query on this issue or any other relevant matters. Thanking you. Yours sincerely, _____________________ Md. Jahidul Islam ID# 2006110000097 Batch: 13th (Finance) BBA Southeast University

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Acknowledgement
At the very beginning, I would like to convey my sincere appreciation to the almighty Allah for giving me the strength and the ability to finish the task within the planned time. It is my privilege that I had the opportunity to complete internship in, Mercantile Bank Limited at Uttara Branch. I would like to thanks all the people with whom I have carried out my internship. First of all I am deeply indebted to our honorable Dean Prof. Dr. Syed Masud Husain, then my Internship Supervisor Mr. Riad Hassan, Senior Lecturer, School of Business Studies, Southeast University for his whole-hearted supervision to me during the Internship period. His valuable suggestions and guidance helped me a lot to prepare the report in a wellorganized manner. I would like to thank Mr. Abdul Halim, Executive Vice President and Head of Mercantile Bank Limited, Uttara Branch, Dhaka for giving me the opportunity to work in his branch. My special thanks go to I.A. Oliur Rahman, First Assistant Vice President of Mercantile Bank Limited, Uttara Branch. I would also like to express my gratitude to Mr. Shamim Rahman (PO), Mr. A.K.M. Hossainuz Zaman (EO) and Md. Mahmud Hossain Limon (Proba.O), Siddiqur Rahman (EO) and Ferdousi Bente Latif (PO) Mercantile Bank Limited, for supervising me at the time of my internship attachment with their best efforts. At all I am greatly thanking to the persons whose enrich books, journals and working papers on international financial management have provided a guideline to me in preparing this report. Moreover, I am very much grateful to all officials of Mercantile Bank Limited, Uttara Branch. This report would not be possible without the cooperation of all officials of MBL, Uttara branch. So my heartiest appreciation goes to those officials. Finally, I would like to thank all others whose strong support makes us able to complete this report.

Executive Summary
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Today necessity of a Bank as a financial institution is undeniable. A country is financially rich when it has modern financial institutions of its own. These institutions play a vital role in the field of financial stability of a country. Banking sector is one of the stable financial institutions of a country. Due to Globalization and Technological changes, the banking business has become very competitive now a day. All banks are competing to give effective real time service to their customers. For giving friendly service to the customers they need experienced and well-educated working force. Banks are most active financial intermediary in todays world. As a financial institution bank mainly operate to communicate among persons and effectively works as safeguard among them in this age globalization. In recent economy banks plays a vital role to entrust international trade, its quite impossible to commit international without help of banks and it also properly works to hedge away risk international traders. Banks operates most effectively to settle any transactions within different countries either trade purposes or personal purposes. This report tries to identify banks role foreign exchange management through evaluating foreign exchange operations of MBL, Uttara branch. I examine different aspects foreign exchanges innovation, development, regulations and related work papers to identify its impact, position and usefulness as banking procedures. The report provides a general view on Mercantile Bank Limited, theoretical aspects related to international trade and foreign exchange transactions as well as gives idea about foreign exchange regulations used in Bangladesh to control related financial institutions. This study also tries to clarify the operating procedures of foreign exchange department of MBL as a commercial bank and also tries to identify some aspects of further improvement in operations. It may help us to provide a scenario of foreign exchange control system in Bangladesh and foreign exchange transitions procedures applied in Bangladeshi commercial banks.

Table of contents
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Particulars Executive Summary Chapter-1: Introduction

1.1 Introduction 1.2 Origin of Report 1.3 Background of the Study 1.4 Objective of the Study 1.5 Methodology of the Study 1.6 Data Analysis 1.7 Rational of the Study 1.8 Scope of the Study 1.9 Limitation of the Study

Page No.
IV 1-6 2 3 3 4 4-5 5 5 6 6 7-19 8 8 9 10 11 12 12 12 13 13 13 13-14 15 16 16-17 18 18-19 20 21 21-22 22-23 23 23 24 25 26 26-27 27 28

Chapter-2: Overview of Mercantile Bank Limited

2.1 Mercantile Bank Limited-At a glance 2.2 Objectives & Goals of Mercantile Bank Limited 2.3 Organizational Structure of Mercantile Bank Limited 2.4 Function of Mercantile Bank Limited 2.5 Financial Performance of MBL-At a Glance 2.6 MBL Uttara Branch-At a Glance 2.6.1 Start of Operation 2.6.2 Corporate Structure of MBL at Uttara Branch 2.7 Resources 2.7.1 Deposit scheme 2.7.2 Consumers Credit Scheme 2.8 Online Banking 2.9 MBL Time Line 2.10 Local Remittance 2.11 Loans and Advances 2.12 Foreign Exchange 2.13 Other Facilities

Chapter-3: Theoretical Aspects of Foreign Exchange

3.1 Foreign Exchange and Foreign Exchange Market 3.1.1 Foreign Exchange Regulations 3.1.2 Foreign Exchange Participants 3.1.3 Three Tired-Market 3.2 Foreign Exchange participants 3.2.1 Types of FX Transactions 3.3 Foreign Accounts of Banks 3.4 Foreign Exchange Position 3.4.1 Components of Exchange Position 3.5 Factors are considered at time foreign trade payment 3.5.1 Payment mode of foreign trade

FOREIGN EXCHANGE SYSTEM OF MERCANTILE BANK LIMITED

3.5.1. 1 Cash in Advance 3.5.1. 2 Open Account 3.5.1. 3 Documentary Collections 3.5.1. 4 Shipment on Consignment Basis 3.5.1. 5 Documentary credit under Letter of Credit 3.5.2 Letter of Credit 3.5.2. 1 Letters of Credit Parties Involved 3.5.2. 2 Types of Documentary of Credit 3.5.2. 3 Operations of Documentary Letters of Credit 3.5.3.1 Opening of Letter of Credit 3.5.3.2 L/C Advising 3.5.3.3 Amendment of Credit 3.5.3.4 Presentation of Document 3.5.3.5 Settlement 3.6 Common forms of Documentary of Credit 3.7 Main Types of Money Transfers through banks

Chapter-4: Foreign Exchange Management of Mercantile Bank Limited

4.1 Foreign Exchange Department of MBL 4.2 Foreign Currency Accounts Offered by MBL 4.2.1 Who can open the accounts? 4.2.1.1 Resident Foreign Currency Deposit (RFCD) 4.2.1.2 Non Resident Foreign Currency Deposit (NFCD) 4.3 Import Section of MBL 4.3.1 Import procedures 4.3.2 Import Financing by MBL 4.3.3 Accounting Treatment for Opening Import L/C 4.4 Export section of MBL 4.4.1 Export Procedures 4.4.2 Export Financing by MBL 4.4.2.1 Pre-Shipment Credit 4.4.2.2 Post Shipment Credit 4.4.3 Appraisal of Documentary Credit in MBL 4.4.4 Accounting Treatment for Opening Exports L/C 4.5 Foreign remittance 4.5.1 Foreign Remittance Section of MBL 4.5.2 Outward Remittance of MBL 4.5.3 Inward remittance of MBL 4.6 Reporting to Bangladesh Bank by MBL 4.6.1 Types of out ward form 4.6.2 Types of inward form 4.7 Exchange rate and exchange gain of MBL 4.8 Income Sources of Foreign Exchange Department 4.9 Income Sources of Foreign Exchange Department 4.10 Ending Summary

28 28 28 29 29-30 31 31-32 33 34 34 34 34 34-35 36 36-37 37 38 39 40 40 40 40-41 41 41-47 48 49-51 51 51-54 54 55-59 60-61 61-62 62-65 65 66 67 67 67 67-68 69-70 70-71 71-72 72 72 73 74

Chapter-5: Analysis; Economic Development ( In Terms of Foreign Exchange)

5.1 Introduction

FOREIGN EXCHANGE SYSTEM OF MERCANTILE BANK LIMITED

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5.1.1 In Case of Import 5.1.2 In Case of Export 5.1.3 In Case of Remittance

Chapter-6: Findings
6.1 SWOT 6.2 Special Findings

75-77 77-80 80-82 83-86 84 85-86 87-90 91-92 93-98 99

Chapter-7 & 8: Recommendation and conclusion Bibliography Appendix Abbreviation

List of Tables
Particulars Chapter-1: Introduction Chapter-2: Overview of Mercantile Bank Limited
Table 2.1: Organization Structure of MBL Table 2.2: Financial Performance of MBL-At a Glance Table2.3: Corporate Structure of MBL, Uttara Branch Table 2.4: Charges for Online Banking of MBL Table 2.5: Sector-Wise Loans and Advances 9 11 12 14 17 35 35

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Chapter-3: Theoretical Aspects of Foreign Exchange

Table 3.1: Contingent liability reversal voucher Table 3.2: Voucher on lodgment of documents

Chapter-4: Foreign Exchange Management of Mercantile Bank Limited

Table 4.1 : Accounting treatment at the time of opening Import L/C

49 49 50 50 51 62 63 63 64 65

Table 4.2: Import L/C is Opened Table Table Table Table Table 4.3: 4.4: 4.5: 4.6: 4.7: Charges are taken by MBL Documents are received Payment Made Packing Voucher BTB L/C is opened

Table 4.8 : BTB L/C is received lodgment made but due date is realized

Table 4.9: Due date arises Table 4.11: FDBP loan created

Chapter-5: Analysis; Economic Development ( In Terms of Foreign Exchange)

Table 5.1 : Growth of MBL by conducting import
Table 5.2 : Economic development of Bangladesh in terms of import

Table 5.3 : Growth of MBL by conducting export

Table 5.4 : Economic development of Bangladesh in terms of export

Table 5.5 : Growth of MBL by conducting remittance business Table 5.6: Economic development of Bangladesh in terms of remittance

75 76 77 78 80 81

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List of Figures
Particulars Chapter-1: Introduction Chapter-2: Overview of Mercantile Bank Limited
Figure 2.1: MBL Uttara Branch-At a glance Figure 2.2: MBL time line Figure 2.3: Sector-Wise Loans and Advances 12 15 17 25 30

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Chapter-3: Theoretical Aspects of Foreign Exchange

Figure 3.1: Type of Foreign Correspondent Accounts Figure 3.2: Mechanism of letter of credit

Chapter-4: Foreign Exchange Management of Mercantile Bank Limited

Figure 4.1: Different stages of export L/C 61

Chapter-5: Analysis Economic Development( In Terms of f Foreign Exchange)

Figure 5.1: Growth of MBL by conducting import Figure 5.2: Economic development of Bangladesh in terms of import Figure 5.3 : Growth of MBL by conducting export
Figure 5.4: Economic development of Bangladesh in terms of export

75 76 78 79 80 81

Figure 5.5: Growth of MBL by conducting remittance business Figure 5.6: Economic development of Bangladesh in terms of remittance

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