PREFACE

Theoretical knowledge without practical knowledge is of little value. In order to achieve positive & concrete results along with theoretical concept the exposure of real life situation existing in corporate is very much needed. To fulfill this need the management course has a provision for the practical training program. I thank my institute to provide us such opportunity having training period in our course so that students can have real feeling of industrial life. I took my project report in HDFC Bank Hazratganj, Lucknow . It was my fortune to get training in very healthy atmosphere. I got ample opportunity to views the overall working of the Forex products and services in HDFC Bank. In the coming pages an attempt has been made to present a comprehensive report is concerning different aspects.

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TABLE OF CONTENTS
Title
Preface i Executive Summary ii

Page No.

Chapter I
Introduction 9-30

Chapter II
Literature Review 31-62

Chapter III
Research Methodology
i. ii. iii. iv. v. vi. Research Objective 64 Research Design 64 Sampling Plan Sample Size Sample Unit Data collection of method 65 65 65 65

64

Chapter IV
Data Analysis & Findings 67

Chapter V
i.
ii. iii.

Recommendation/suggestions
Conclusion Bibliography

77
78 81

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iv.

Appendix/Annexure

80

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ABOUT THE PROJECT

THE TOPIC: HDFC ITS FOREX PRODUCTS AND SERVICES
At HDFC Bank, I was assigned with the topic as HDFC-Its Forex Products and Services for my project work. The selection of the topic was to know how the company generates business through Forex Products.

REASON FOR SELECTION OF THIS TOPIC:

The financial sector is one of the booming and increasing sectors in India. The Forex services are the most powerful, efficient and effective channel through which the company sales its various types of financial products and company takes operational work also. It is really difficult to convince customers and sell a single product and accomplish operational work.

IMPORTANCE TO THE COMPANY:

The ultimate purpose of giving me this topic was to know about the customers perceptions about the different forex products of the bank, and to know about operational process how these products can attract them and how the company can generate maximum profit by convincing them through forex trade services and to better understand customer requirement and to understand operational methodology.

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LEARNING FROM THE STUDY:

The process of bank related transaction, bank related various terms, work environment of HDFC Bank. Different products and services provided by the bank. Customers perception about the different products. The brand image of the bank. What are the problems faced by customer on daily basis. How to communicate with the customers. Different techniques of dealing with the customers. How to convince and convert a customer into a real customer. and at the last how to better response to the customer problem.

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SCOPE OF PROJECT

1) To study the forex products and services of the bank. 2) To study the flow of Forex Trading Process. 3) To study the Forex Documentation process. 4) To study the process involved in getting Forex services. 5) To study how banking process attract the customers toward the Forex Products and Services to maximize the profits.

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OBJECTIVE OF PROJECT

The project based on HDFC-its Forex Products and Services are as following objectives:o o o o To know how bank do Forex Trading. Understand the overall process involved in the Forex Trading. Understand the overall process used by the HDFC bank in forex trading. To know more about the HDFC bank.

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CHAPTER 1:INTRODUCTION

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INTRODUCTION
Foreign exchange market (Forex) Foreign exchange Exchange rates Currency band Exchange rate Exchange rate regime Fixed exchange rate Floating exchange rate Linked exchange rate Markets Foreign exchange market Futures exchange Retail forex Products Currency Currency future Non-deliverable forward Forex swap Currency swap Foreign exchange option Historical agreements Bretton Woods Conference Smithsonian Agreement Plaza Accord Louvre Accord Page 117

The foreign exchange market (forex, FX, or currency market) is a worldwide decentralized over-the-counter financial market for the trading of currencies. Financial centers around the world function as anchors of trading between a wide range of different types of buyers and sellers around the clock, with the exception of weekends. The foreign exchange market determines the relative values of different currencies. The primary purpose of the foreign exchange is to assist international trade and investment, by allowing businesses to convert one currency to another currency. For example, it permits a US business to import British goods and pay Pound Sterling, even though the business's income is in US dollars. It also supports speculation, and facilitates the carry trade, in which investors borrow low-yielding currencies and lend (invest in) high-yielding currencies, and which (it has been claimed) may lead to loss of competitiveness in some countries. In a typical foreign exchange transaction, a party purchases a quantity of one currency by paying a quantity of another currency. The modern foreign exchange market began forming during the 1970s when countries gradually switched to floating exchange rates from the previous exchange rate regime, which remained fixed as per the Bretton Woods system. The foreign exchange market is unique because of

its huge trading volume, leading to high liquidity; its geographical dispersion; its continuous operation: 24 hours a day except weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday; the variety of factors that affect exchange rates; the low margins of relative profit compared with other markets of fixed income; and the use of leverage to enhance profit margins with respect to account size.

As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding market manipulation by central banks. According to the Bank for International Settlements,[3] as of April 2010, average daily turnover in global foreign exchange markets is

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estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. The $3.98 trillion break-down is as follows:

$1.490 trillion in spot transactions $475 billion in outright forwards $1.765 trillion in foreign exchange swaps $43 billion currency swaps $207 billion in options and other products

Market size and liquidity

Main foreign exchange market turnover, 19882007, measured in billions of USD. The foreign exchange market is the largest and most liquid financial market in the world. Traders include large banks, central banks, currency speculators, corporations, governments, and other financial institutions. The average daily volume in the global foreign exchange and

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related markets is continuously growing. Daily turnover was reported to be over US$3.98 trillion in April 2010 by the Bank for International Settlements.[3] Of the $3.98 trillion daily global turnover, trading in London accounted for around $1.85 trillion, or 36.7% of the total, making London by far the global center for foreign exchange. In second and third places respectively, trading in New York City accounted for 17.9%, and Tokyo accounted for 6.2%.[4] In addition to "traditional" turnover, $2.1 trillion was traded in derivatives. Exchange-traded FX futures contracts were introduced in 1972 at the Chicago Mercantile Exchange and are actively traded relative to most other futures contracts. Several other developed countries also permit the trading of FX derivative products (like currency futures and options on currency futures) on their exchanges. All these developed countries already have fully convertible capital accounts. Most emerging countries do not permit FX derivative products on their exchanges in view of prevalent controls on the capital accounts. However, a few select emerging countries (e.g., Korea, South Africa, India[1]; [2]) have already successfully experimented with the currency futures exchanges, despite having some controls on the capital account. FX futures volume has grown rapidly in recent years, and accounts for about 7% of the total foreign exchange market volume, according to The Wall Street Journal Europe (5/5/06, p. 20).

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Top 10 currency traders

% of overall volume, May 2010

Rank 1 2 3 4 5 6 7 8 9 10

Name Deutsche Bank UBS AG Barclays Capital Citi Royal Bank of Scotland JPMorgan HSBC Credit Suisse Goldman Sachs Morgan Stanley

Market share 18.06% 11.30% 11.08% 7.69% 6.50% 6.35% 4.55% 4.44% 4.28% 2.91%

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Foreign exchange trading increased by over a third in the 12 months to April 2010 and has more than doubled since 2001. This is largely due to the growing importance of foreign exchange as an asset class and an increase in fund management assets, particularly of hedge funds and pension funds. The diverse selection of execution venues have made it easier for retail traders to trade in the foreign exchange market. In 2009, retail traders constituted over 5% of the whole FX market volumes (see retail trading platforms). Because foreign exchange is an OTC market where brokers/dealers negotiate directly with one another, there is no central exchange or clearing house. The biggest geographic trading centre is the UK, primarily London, which according to TheCityUK estimates has increased its share of global turnover in traditional transactions from 34.6% in April 2007 to 36.7% in April 2010. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. For instance, when the IMF calculates the value of its SDRs every day, they use the London market prices at noon that day.

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MARKET PARTICIPANTS
Financial markets

Public market

Exchange Securities Bond market Fixed income Corporate bond Government bond Municipal bond Bond valuation High-yield debt Stock market Stock Preferred stock Common stock Registered share Voting share Stock exchange Derivatives market Securitization Hybrid security Page 123

Credit derivative Futures exchange OTC, non organized Spot market Forwards Swaps Options Foreign exchange Exchange rate Currency Other markets Money market Reinsurance market Commodity market Real estate market Practical trading Participants Clearing house Financial regulation Finance series Banks and banking Corporate finance Personal finance Public finance vde Unlike a stock market, the foreign exchange market is divided into levels of access. At the top is the inter-bank market, which is made up of the largest commercial banks and securities dealers. Within the inter-bank market, spreads, which are the difference between the bid and ask prices, Page 124

are razor sharp and usually unavailable, and not known to players outside the inner circle. The difference between the bid and ask prices widens (from 0-1 pip to 1-2 pips for some currencies such as the EUR). This is due to volume. If a trader can guarantee large numbers of transactions for large amounts, they can demand a smaller difference between the bid and ask price, which is referred to as a better spread. The levels of access that make up the foreign exchange market are determined by the size of the "line" (the amount of money with which they are trading). The top-tier inter-bank market accounts for 53% of all transactions. After that there are usually smaller banks, followed by large multi-national corporations (which need to hedge risk and pay employees in different countries), large hedge funds, and even some of the retail FX-metal market makers. According to Galati and Melvin, Pension funds, insurance companies, mutual funds, and other institutional investors have played an increasingly important role in financial markets in general, and in FX markets in particular, since the early 2000s. (2004) In addition, he notes, Hedge funds have grown markedly over the 20012004 period in terms of both number and overall size Central banks also participate in the foreign exchange market to align currencies to their economic needs.

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Banks
The interbank market caters for both the majority of commercial turnover and large amounts of speculative trading every day. A large bank may trade billions of dollars daily. Some of this trading is undertaken on behalf of customers, but much is conducted by proprietary desks, trading for the bank's own account. Until recently, foreign exchange brokers did large amounts of business, facilitating interbank trading and matching anonymous counterparts for large fees. Today, however, much of this business has moved on to more efficient electronic systems. The broker squawk box lets traders listen in on ongoing interbank trading and is heard in most trading rooms, but turnover is noticeably smaller than just a few years ago.

Commercial companies
An important part of this market comes from the financial activities of companies seeking foreign exchange to pay for goods or services. Commercial companies often trade fairly small amounts compared to those of banks or speculators, and their trades often have little short term impact on market rates. Nevertheless, trade flows are an important factor in the long-term direction of a currency's exchange rate. Some multinational companies can have an unpredictable impact when very large positions are covered due to exposures that are not widely known by other market participants.

Central banks
National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. Nevertheless, the effectiveness of central bank "stabilizing speculation" is doubtful because central banks do not go bankrupt if they make large losses, like other traders would, and there is no convincing evidence that they do make a profit trading.

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Forex Fixing
Forex fixing is the daily monetary exchange rate fixed by the national bank of each country. The idea is that central bank use the fixing time and exchange rate to evaluate behavior of their currency. Fixing exchange rates reflects the real value of equilibrium in the forex market. Banks, dealers and online foreign exchange traders use fixing rates as a trend indicator. The mere expectation or rumor of central bank intervention might be enough to stabilize a currency, but aggressive intervention might be used several times each year in countries with a dirty float currency regime. Central banks do not always achieve their objectives. The combined resources of the market can easily overwhelm any central bank.[7] Several scenarios of this nature were seen in the 199293 ERM collapse, and in more recent times in Southeast Asia.

Hedge funds as speculators

About 70% to 90%[citation needed] of the foreign exchange transactions are speculative. In other words, the person or institution that bought or sold the currency has no plan to actually take delivery of the currency in the end; rather, they were solely speculating on the movement of that particular currency. Hedge funds have gained a reputation for aggressive currency speculation since 1996. They control billions of dollars of equity and may borrow billions more, and thus may overwhelm intervention by central banks to support almost any currency, if the economic fundamentals are in the hedge funds' favor.

Investment management firms

Investment management firms (who typically manage large accounts on behalf of customers such as pension funds and endowments) use the foreign exchange market to facilitate transactions in foreign securities. For example, an investment manager bearing an international equity portfolio needs to purchase and sell several pairs of foreign currencies to pay for foreign securities purchases.

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Some investment management firms also have more speculative specialist currency overlay operations, which manage clients' currency exposures with the aim of generating profits as well as limiting risk. Whilst the number of this type of specialist firms is quite small, many have a large value of assets under management (AUM), and hence can generate large trades.

Retail foreign exchange brokers

Retail traders (individuals) constitute a growing segment of this market, both in size and importance. Currently, they participate indirectly through brokers or banks. Retail brokers, while largely controlled and regulated in the USA by the CFTC and NFA have in the past been subjected to periodic foreign exchange scams.[8][9] To deal with the issue, the NFA and CFTC began (as of 2009) imposing stricter requirements, particularly in relation to the amount of Net Capitalization required of its members. As a result many of the smaller, and perhaps questionable brokers are now gone. There are two main types of retail FX brokers offering the opportunity for speculative currency trading: brokers and dealers or market makers. Brokers serve as an agent of the customer in the broader FX market, by seeking the best price in the market for a retail order and dealing on behalf of the retail customer. They charge a commission or mark-up in addition to the price obtained in the market. Dealers or market makers, by contrast, typically act as principal in the transaction versus the retail customer, and quote a price they are willing to deal atthe customer has the choice whether or not to trade at that price. In assessing the suitability of an FX trading service, the customer should consider the ramifications of whether the service provider is acting as principal or agent. When the service provider acts as agent, the customer is generally assured of a known cost above the best interdealer FX rate. When the service provider acts as principal, no commission is paid, but the price offered may not be the best available in the marketsince the service provider is taking the other side of the transaction, a conflict of interest may occur.

Non-bank foreign exchange companies

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Non-bank foreign exchange companies offer currency exchange and international payments to private individuals and companies. These are also known as foreign exchange brokers but are distinct in that they do not offer speculative trading but currency exchange with payments. I.e., there is usually a physical delivery of currency to a bank account. Send Money Home offers an in-depth comparison into the services offered by all the major non-bank foreign exchange companies. It is estimated that in the UK, 14% of currency transfers/payments[10] are made via Foreign Exchange Companies.[11] These companies' selling point is usually that they will offer better exchange rates or cheaper payments than the customer's bank. These companies differ from Money Transfer/Remittance Companies in that they generally offer higher-value services.

Money transfer/remittance companies

Money transfer companies/remittance companies perform high-volume low-value transfers generally by economic migrants back to their home country. In 2007, the Aite Group estimated that there were $369 billion of remittances (an increase of 8% on the previous year). The four largest markets (India, China, Mexico and the Philippines) receive $95 billion. The largest and best known provider is Western Union with 345,000 agents globally followed by UAE Exchange & Financial Services Ltd.[citation needed]

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Most traded currencies[3] Currency distribution of reported FX market turnover[12] Rank Currency 1 United States dollar 2 Euro 3 Japanese yen 4 Pound sterling 5-6 Australian dollar 5-6 Swiss franc 5-6 Canadian dollar 7 Hong Kong dollar 8 Swedish krona 9-10 New Zealand dollar Other Currencies Total ISO 4217 code (Symbol) USD ($) EUR () JPY () GBP () AUD ($) CHF (Fr) CAD ($) HKD ($) SEK (kr) NZD ($) % daily share (April 2012) 84.9% 39.1% 19.0% 12.9% 7.6% 6.4% 5.3% 2.4% 2.2% 1.6% 18.6% 200%

Trading characteristics

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There is no unified or centrally cleared market for the majority of FX trades, and there is very little cross-border regulation. Due to the over-the-counter (OTC) nature of currency markets, there are rather a number of interconnected marketplaces, where different currencies instruments are traded. This implies that there is not a single exchange rate but rather a number of different rates (prices), depending on what bank or market maker is trading, and where it is. In practice the rates are often very close, otherwise they could be exploited by arbitrageurs instantaneously. Due to London's dominance in the market, a particular currency's quoted price is usually the London market price. A joint venture of the Chicago Mercantile Exchange and Reuters, called Fxmarketspace opened in 2007 and aspired but failed to the role of a central market clearing mechanism The main trading center is London, but New York, Tokyo, Hong Kong and Singapore are all important centers as well. Banks throughout the world participate. Currency trading happens continuously throughout the day; as the Asian trading session ends, the European session Page 131

begins, followed by the North American session and then back to the Asian session, excluding weekends. Fluctuations in exchange rates are usually caused by actual monetary flows as well as by expectations of changes in monetary flows caused by changes in gross domestic product (GDP) growth, inflation (purchasing power parity theory), interest rates (interest rate parity, Domestic Fisher effect, International Fisher effect), budget and trade deficits or surpluses, large crossborder M&A deals and other macroeconomic conditions. Major news is released publicly, often on scheduled dates, so many people have access to the same news at the same time. However, the large banks have an important advantage; they can see their customers' order flow. Currencies are traded against one another. Each currency pair thus constitutes an individual trading product and is traditionally noted XXXYYY or XXX/YYY, where XXX and YYY are the ISO 4217 international three-letter code of the currencies involved. The first currency (XXX) is the base currency that is quoted relative to the second currency (YYY), called the counter currency (or quote currency). For instance, the quotation EURUSD (EUR/USD) 1.5465 is the price of the euro expressed in US dollars, meaning 1 euro = 1.5465 dollars. Historically, the base currency was the stronger currency at the creation of the pair. However, when the euro was created, the European Central Bank mandated that it always be the base currency in any pairing. The factors affecting XXX will affect both XXXYYY and XXXZZZ. This causes positive currency correlation between XXXYYY and XXXZZZ. On the spot market, according to the BIS study, the most heavily traded products were:

EURUSD: 27% USDJPY: 13% GBPUSD (also called cable): 12%

and the US currency was involved in 84.39% of transactions, followed by the euro (39.1%), the yen (19.0%), and sterling (12.9%) (see table). Volume percentages for all individual currencies should add up to 200%, as each transaction involves two currencies. Page 132

Trading in the euro has grown considerably since the currency's creation in January 1999, and how long the foreign exchange market will remain dollar-centered is open to debate. Until recently, trading the euro versus a non-European currency ZZZ would have usually involved two trades: EURUSD and USDZZZ. The exception to this is EURJPY, which is an established traded currency pair in the interbank spot market. As the dollar's value has eroded during 2008, interest in using the euro as reference currency for prices in commodities (such as oil), as well as a larger component of foreign reserves by banks, has increased dramatically. Transactions in the currencies of commodity-producing countries, such as AUD, NZD, CAD, have also increased.

DETERMINANTS OF FX RATES
The following theories explain the fluctuations in FX rates in a floating exchange rate regime (In a fixed exchange rate regime, FX rates are decided by its government): Page 133

(a) International parity conditions: Relative Purchasing Power Parity, interest rate parity, Domestic Fisher effect, International Fisher effect. Though to some extent the above theories provide logical explanation for the fluctuations in exchange rates, yet these theories falter as they are based on challengeable assumptions [e.g., free flow of goods, services and capital] which seldom hold true in the real world. (b) Balance of payments model (see exchange rate): This model, however, focuses largely on tradable goods and services, ignoring the increasing role of global capital flows. It failed to provide any explanation for continuous appreciation of dollar during 1980s and most part of 1990s in face of soaring US current account deficit. (c) Asset market model (see exchange rate): views currencies as an important asset class for constructing investment portfolios. Assets prices are influenced mostly by peoples willingness to hold the existing quantities of assets, which in turn depends on their expectations on the future worth of these assets. The asset market model of exchange rate determination states that the exchange rate between two currencies represents the price that just balances the relative supplies of, and demand for, assets denominated in those currencies.

None of the models developed so far succeed to explain FX rates levels and volatility in the longer time frames. For shorter time frames (less than a few days) algorithm can be devised to Page 134

predict prices. Large and small institutions and professional individual traders have made consistent profits from it. It is understood from above models that many macroeconomic factors affect the exchange rates and in the end currency prices are a result of dual forces of demand and supply. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange. Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology.

Economic factors
These include: (a)economic policy, disseminated by government agencies and central banks, (b)economic conditions, generally revealed through economic reports, and other economic indicators.

Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates). Page 135

Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency.

Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency.

Inflation levels and trends: Typically a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise short-term interest rates to combat rising inflation.

Economic growth and health: Reports such as GDP, employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be.

Productivity of an economy: Increasing productivity in an economy should positively influence the value of its currency. Its effects are more prominent if the increase is in the traded sector [3].

Political conditions
Internal, regional, and international political conditions and events can have a profound effect on currency markets. All exchange rates are susceptible to political instability and anticipations about the new ruling party. Political upheaval and instability can have a negative impact on a nation's economy. For example, destabilization of coalition governments in Pakistan and Thailand can negatively affect Page 136

the value of their currencies. Similarly, in a country experiencing financial difficulties, the rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive/negative interest in a neighboring country and, in the process, affect its currency.

Market psychology
Market psychology and trader perceptions influence the foreign exchange market in a variety of ways:

Flights to quality: Unsettling international events can lead to a "flight to quality," with investors seeking a "safe haven." There will be a greater demand, thus a higher price, for currencies perceived as stronger over their relatively weaker counterparts. The U.S. dollar, Swiss franc and gold have been traditional safe havens during times of political or economic uncertainty.[13]

Long-term trends: Currency markets often move in visible long-term trends. Although currencies do not have an annual growing season like physical commodities, business cycles do make themselves felt. Cycle analysis looks at longer-term price trends that may rise from economic or political trends.[14]

"Buy the rumor, sell the fact": This market truism can apply to many currency situations. It is the tendency for the price of a currency to reflect the impact of a particular action before it occurs and, when the anticipated event comes to pass, react in exactly the opposite direction. This may also be referred to as a market being "oversold" or "overbought".[15] To buy the rumor or sell the fact can also be an example of the cognitive bias known as anchoring, when investors focus too much on the relevance of outside events to currency prices.

Economic numbers: While economic numbers can certainly reflect economic policy, some reports and numbers take on a talisman-like effect: the number itself becomes important to market psychology and may have an immediate impact on short-term market moves. "What to watch" can change over time. In recent years, for example,

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money supply, employment, trade balance figures and inflation numbers have all taken turns in the spotlight.

Technical trading considerations: As in other markets, the accumulated price movements in a currency pair such as EUR/USD can form apparent patterns that traders may attempt to use. Many traders study price charts in order to identify such patterns.[16]

Algorithmic trading in foreign exchange

Electronic trading is growing in the FX market, and algorithmic trading is becoming much more common. According to financial consultancy Celent estimates, by 2008 up to 25% of all trades by volume will be executed using algorithm, up from about 18% in 2005.

FINANCIAL INSTRUMENTS
Spot
A spot transaction is a two-day delivery transaction (except in the case of trades between the US Dollar, Canadian Dollar, Turkish Lira, EURO and Russian Ruble, which settle the next business Page 138

day), as opposed to the futures contracts, which are usually three months. This trade represents a direct exchange between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction.

Forward
One way to deal with the foreign exchange risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be one day, a few days, months or years. Usually the date is decided by both parties. Then the forward contract is negotiated and agreed upon by both parties.

Swap
The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.

Future
Foreign currency futures are exchange traded forward transactions with standard contract sizes and maturity dates for example, $1000 for next November at an agreed rate [4],[5]. Futures are standardized and are usually traded on an exchange created for this purpose. The average contract length is roughly 3 months. Futures contracts are usually inclusive of any interest amounts.

Option
A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world.. Page 139

Speculation
Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly. Nevertheless, economists including Milton Friedman have argued that speculators ultimately are a stabilizing influence on the market and perform the important function of providing a market for hedgers and transferring risk from those people who don't wish to bear it, to those who do.[17] Other economists such as Joseph Stiglitz consider this argument to be based more on politics and a free market philosophy than on economics.[18] Large hedge funds and other well capitalized "position traders" are the main professional speculators. According to some economists, individual traders could act as "noise traders" and have a more destabilizing role than larger and better informed actors [19]. Currency speculation is considered a highly suspect activity in many countries.[where?] While investment in traditional financial instruments like bonds or stocks often is considered to contribute positively to economic growth by providing capital, currency speculation does not; according to this view, it is simply gambling that often interferes with economic policy. For example, in 1992, currency speculation forced the Central Bank of Sweden to raise interest rates for a few days to 500% per annum, and later to devalue the krona.[20] Former Malaysian Prime Minister Mahathir Mohamad is one well known proponent of this view. He blamed the devaluation of the Malaysian ringgit in 1997 on George Soros and other speculators.

Gregory J. Millman reports on an opposing view, comparing speculators to "vigilantes" who simply help "enforce" international agreements and anticipate the effects of basic economic "laws" in order to profit.[21] In this view, countries may develop unsustainable financial bubbles or otherwise mishandle their national economies, and foreign exchange speculators made the inevitable collapse happen sooner. A relatively quick collapse might even be preferable to continued economic Page 140

mishandling, followed by an eventual, larger, collapse. Mahathir Mohamad and other critics of speculation are viewed as trying to deflect the blame from themselves for having caused the unsustainable economic conditions.

RISK AVERSION IN FOREX

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Fig.1 Chart showing MSCI World Index of Equities fell while the US Dollar Index rose. Risk aversion in the forex is a kind of trading behavior exhibited by the foreign exchange market when a potentially adverse event happens which may affect market conditions. This behavior is caused when risk averse traders liquidate their positions in risky assets and shift the funds to less risky assets due to uncertainty. In the context of the forex market, traders liquidate their positions in various currencies to take up positions in safe haven currencies, such as the US Dollar.[23] Sometimes, the choice of a safe haven currency is more of a choice based on prevailing sentiments rather than one of economic statistics. An example would be the Financial Crisis of 2008. The value of equities across world fell while the US Dollar strengthened (see Fig.1). This happened despite the strong focus of the crisis in the USA.

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CHAPTER 2:COMPANY PROFILE

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COMPANY PROFILE

The Housing Development Finance Corporation Limited (HDFC) was amongst the first to receive an 'in principle' approval from the Reserve Bank of India (RBI) to set up a bank in the private sector, as part of the RBI's liberalization of the Indian Banking Industry in 1994. The bank was incorporated in August 1994 in the name of 'HDFC Bank Limited', with its registered office in Mumbai, India. HDFC Bank commenced operations as a Scheduled Commercial Bank in January 1995.

Promoters
HDFC is India's premier housing finance company and enjoys an impeccable track record in India as well as in international markets. Since its inception in 1977, the Corporation has maintained a consistent and healthy growth in its operations to remain the market leader in mortgages. Its outstanding loan portfolio covers well over a million dwelling units. HDFC has developed significant expertise in retail mortgage loans to different market segments and also has a large corporate client base for its housing related credit facilities. With its experience in

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the financial markets, a strong market reputation, large shareholder base and unique consumer franchise, HDFC was ideally positioned to promote a bank in the Indian environment.

Business focuses
HDFC Bank's mission is to be a World-Class Indian Bank. The objective is to build sound customer franchises across distinct businesses so as to be the preferred provider of banking services for target retail and wholesale customer segments, and to achieve healthy growth in profitability, consistent with the bank's risk appetite. The bank is committed to maintain the highest level of ethical standards, professional integrity, corporate governance and regulatory compliance. HDFC Bank's business philosophy is based on four core values - Operational Excellence, Customer Focus, Product Leadership and People.

Capital structure
As on 30th June, 2012 the authorized share capital of the Bank is Rs. 550 crore. The paid-up capital as on said date is Rs. 459, 69, 07,030/- (45, 96, 90,703 equity shares of Rs. 10/- each). The HDFC Group holds 23.63 % of the Bank's equity and about 17.05 % of the equity is held by the ADS Depository (in respect of the bank's American Depository Shares (ADS) Issue). 27.45% of the equity is held by Foreign Institutional Investors (FIIs) and the Bank has about 4,33,078 shareholders. The shares are listed on the Bombay Stock Exchange Limited and The National Stock Exchange of India Limited. The Bank's American Depository Shares (ADS) are listed on the New York Stock Exchange (NYSE) under the symbol 'HDB' and the Bank's Global Depository Receipts (GDRs) are listed on Luxembourg Stock Exchange under ISIN No US40415F2002.

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Distribution network
HDFC Bank is headquartered in Mumbai. The Bank at present has an enviable network of 1,725 branches spread in 780 cities across India. All branches are linked on an online real-time basis. Customers in over 500 locations are also serviced through Telephone Banking. The Bank's expansion plans take into account the need to have a presence in all major industrial and commercial centers where its corporate customers are located as well as the need to build a strong retail customer base for both deposits and loan products. Being a clearing/settlement bank to various leading stock exchanges, the Bank has branches in the centers where the NSE/BSE have a strong and active member base. The Bank also has 4,865 networked ATMs across these cities. Moreover, HDFC Bank's ATM network can be accessed by all domestic and international Visa/MasterCard, Visa Electron/Maestro, Plus/Cirrus and American Express Credit/Charge cardholders.

Management
Mr. C.M. Vasudev has been appointed as the Chairman of the Bank with effect from 6th July 2010 subject to the approval of the Reserve Bank of India and the shareholders. Mr. Vasudev has been a Director of the Bank since October 2006. A retired IAS officer, Mr. Vasudev has had an illustrious career in the civil services and has held several key positions in India and overseas, including Finance Secretary, Government of India, Executive Director, World Bank and Government nominee on the Boards of many companies in the financial sector. The Managing Director, Mr. Aditya Puri, has been a professional banker for over 25 years and before joining HDFC Bank in 1994 was heading Citibank's operations in Malaysia.

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The Bank's Board of Directors is composed of eminent individuals with a wealth of experience in public policy, administration, industry and commercial banking. Senior executives representing HDFC are also on the Board. Senior banking professionals with substantial experience in India and abroad head various businesses and functions and report to the Managing Director. Given the professional expertise of the management team and the overall focus on recruiting and retaining the best talent in the industry, the bank believes that its people are a significant competitive strength.

FINANCIAL INFORMATION
The last twelve years have been very fulfilling. We can of course wax eloquent about it in so many ways, but they say, figures don't lie, so we will let the figures do all the talking. They will give you a fair idea of how we have grown in the past few years.

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FOREX AND TRADE SERVICE IN HDFC

Are you a frequent flyer for business or often holiday abroad? Are you an importer/exporter of foreign and Indian goods?

If you need to deal in foreign currency and keep tabs on exchange rates every now and then, transfer monies to India, make payments etc., HDFC Bank has a range of products and services that you can choose from to transact smoothly, efficiently and in a timely manner.

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We offer the following Foreign Exchange Products and Services.

Foreign Exchange and Trade Services

The following are different methods of transacting in Foreign Exchange and remitting money. Travellers Cheques Foreign Currency Cash Forex Plus card Forex Plus Chip card Foreign Currency Drafts Cheque Deposits Remittances Cash to Master Trade Services Forex Services Branch Locator

Important guidelines and schedules

All Foreign Exchange transactions are conducted by strictly adhering to RBI guidelines. Depending on the nature of your transaction or point of travel, you will need to understand your Foreign Exchange limits. RBI Guidelines Forex Limits Non HDFC Bank Account Holders FAQs Miscellaneous Currencies 16 international working days from value date for MISC

currencies NZD, HKD, JPY, CHF, NOK etc. Page 149

PRODUCT AND SERVICES

1. Choose from the following methods of transacting in Foreign Exchange. 2. Travellers Cheques 3. Foreign Currency Cash 4. Forex Plus card 5. Forex Plus Chip card 6. Foreign Currency Demand Drafts 7. Cheque Deposits 8. Remittances 9. Cash to Master 10. Trade Services 11. Non HDFC Bank Account Holders

1 .Foreign Currency Travellers Cheques

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Travellers Cheques are a safe and easy way to protect your money when you travel. You can encash them only when you need to, and only against your signature, unlike cash which can be stolen and misused by anybody, immediately. Loss of Travellers Cheque can be reported anywhere in the world by making a single phone and the pre-fixed amount on the cheques are made refundable. Travellers Cheques are offered in major currencies like USD, GBP, Euro, CAD, AUD and JPY. These are available in various denominations to suit your needs. At present HDFC Bank offers American Express Travellers Cheques which are widely accepted at Merchant Establishments and Financial Institutions across more than 200 countries.

2. Foreign Currency Cash

Foreign Currency Cash is a convenient way of meeting personal expenses along your journey, paying for taxis / internal travel, food expenses etc. You could avail of Foreign Currency Cash in USD, GBP, EURO, AUD and CAD from our branches offering Foreign Exchange facilities.

3. Forex Plus card

HDFC Bank brings you the Forex Plus Card - a pre-paid traveller's card designed to give you a secure and hassle-free travel experience. No more chasing moneychangers. Or paying transaction charges for shopping abroad. The Forex plus card is ideal for travelers since it can be Shotlisted if stolen & reloaded, while you are still abroad! In fact, it is the perfect answer to all your foreign exchange needs.

4. Forex plus Chip Card

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HDFC Bank brings you the Forex Plus Chip Card - a prepaid traveller's card designed to give you a secure and hassle free travel experience. Now, enjoy greater peace of mind the next time you travel abroad with this new generation, chip-enabled card. HDFC Bank ForexPlus Chip Card has an embedded chip which stores encrypted and confidential information. As compared to magnetic strip cards, this card offers greater security and increased protection against counterfeiting and skimming card frauds

5. Foreign Currency Demand Drafts

You can now avail of our FCY DD facility to make payments for various purposes like:

Payment of University fees abroad Making a gift remittance to a friend or relative Payment of application fees for various exams like TOEFL , GMAT etc. Payment for medical treatment abroad And all other permitted purposes as per the RBI guidelines.

FCY Demand Drafts are issued in currencies such as United States Dollars (USD), Great Britain Pounds (GBP), EURO, Japanese Yen (JPY), Australian Dollars (AUD), Canadian dollars (CAD), New Zealand Dollars (NZD), Hong Kong Dollars (HKD), Swiss Francs (CHF) and Singapore Dollars (SGD).

6. Foreign Currency Cheque Deposits

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You can directly deposit your foreign currency cheques, foreign currency demand draft and Travellers Cheques in to your saving or current account. HDFC Bank will then have the cheques sent for collection and the funds will be credited to your account in Indian Rupees. We accept cheques of various currencies like USD, GBP, Euro, JPY, Australian Dollars, Canadian Dollars, UAE Dirhams, Hong Kong Dollars and Swiss Francs.

Currency

Period of Account Credit from Nostro Credit date 5 international working days from value date for cheques payable in New York 16 international working days from value date for cheques payable outside New York 14 international working days from value date 2nd international working day from value date for cheques payable in Frankfurt/Germany 15 international working days from value date for cheques payable outside Frankfurt/Germany 10 international working days from value date 11 international working days from value date Final Credit 16 international working days from value date for MISC currencies NZD, HKD, JPY, CHF, NOK etc.

USD Cheques

GBP Cheques

EUR Cheques

AUD Cheques CAD Cheques SGD Cheques Miscellaneous Currencies

Note:

Value Date is the date of credit to our Nostro Account Page 153

The Card Rate prevailing on the date of credit to customer account would be the applicable exchange rate In addition to the above mentioned period, date of credit to customer account would include transit time to correspondent bank

Please follow the simple guidelines below to enable faster processing a. Ensure that your

Account Number and Name are correct and clear on the payin slip In the payee's name In the date In the amount Or over-writing on the signature

b. Make sure the Cheque / Draft is countersigned in case of an alteration

c. Ensure that the amount entered in words and the figures are written correctly. Please note that Cheques drawn in one currency payable in another country where currency is different will take a longer period to realise and would attract charges of various correspondent banks as per their own tariff schedule over which we do not have any control. For e.g. A cheque drawn in USD payable on a bank in Singapore or Cheque drawn in GBP payable on a bank in South Africa or Cheque drawn in USD payable in Canada.

7. Return of Foreign Currency Cheque/Instrument

Foreign currency cheque/instrument sent for collection to the Payee bank through Correspondent Bank located outside India can be returned by the Payee bank even after crediting the proceeds to depositors account after cooling period, for whatsoever reason including but not limited to "insufficient funds", "account closed", fraudulent cheque" etc as per prevailing clearing rules / laws related to cheque collection in drawee countries. In case of such cheque returns, the Payee bank recovers the amount of returned cheque, thus Page 154

credited earlier, by debiting the HDFC Banks Nostro account. HDFC Bank has the right to debit the depositors account to the extent of returned cheque amount immediately (at the prevailing exchange rate) along with charges and interest from the date of credit of proceeds till the date on which amount is recovered from the depositor.

8. REMITTANCES
HDFC Bank offers you the remittance facilities by which you can to send and receive money to your loved ones. They are categorized depending on your location and the urgency with which you want the money transferred.

Cheque Box - A convenient way to remit money, currently available for NRIs in the US and Europe. Telegraphic transfer - Remittance of money through our Correspondent Banks.

9. Cash to Master
Often, foreign ships travel through India and dock their vessels at various ports / harbors in the country. One of the major requirements during such temporary stays, is that of FCY Cash that has to be made available to the Captain of the Ship for covering Crew wages or for other expenses on board the ship.

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These requirements are usually met through a facility called "Cash to Master". To collect this cash, the master of the ship has to approach the branch with his passport and a duly filled up application form. This product is available only in United States Dollars, Pounds Sterling and Euro Currencies.

10. Forex point - Non HDFC Bank Account Holders

Now foreign exchange facilities can be availed by customers who do not have accounts with us at any of our branches transacting in Foreign Exchange. You can buy FCY Cash, TC's and FCY DD's from any our branch and also encash your TC's and Cash at our branches (available at select branches only). Foreign Exchange can be availed against payments by Cash, Cheque or Pay Order/ Demand Draft. A maximum of Rs. 49,999/- (as per Indian Tax Laws) will be accepted in cash and any amount above Rs. 49,999/-, against a Pay Order or Cheque after clearance of the same. You need to carry the required Documentary Proof for issuance of Foreign Exchange.

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11.TRADE SERVICE
As one of the fast emerging private banks to provide trade services from Exports to Imports, Bank Guarantees to Domestic Bills, nobody understands your business requirements like we do. We are rapidly expanding our base in the retail segment. We have people with high level of expertise and experience in trade services to provide services to suit your specific requirements and structure solutions for your business needs. Our bank's growing network of branches and correspondent relationship with banks worldwide enables us to meet your various business requirements.

Benefits

Dedicated professional trade finance desk Competitive exchange rates Faster payments Quick turn around time Improved cash flows Competitive charges

Our Services

Imports Services

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We are an institution of international repute. We are highly respected in the world of international finance and cross border transactions. Take advantage of our wide network of correspondent relationships with reputed international banks worldwide. The facilities offered to importers are:

Advance Remittance Direct Remittance Import Collection Letters of Credit

1. Advance Remittance
Your overseas exporter may require you to make full payment in advance for the goods to be exported to you. The exporter would dispatch the goods to you after he receives full payment from you. For this purpose, HDFC Bank will make your remittance in foreign currency to the exporter at a very competitive rate.

2. Direct Remittance
You may require the exporter overseas to dispatch the goods first and then remit the payment for the goods. The exporter would then dispatch the goods to you. The overseas exporter will then send the documents directly to you. When you approach us along with the documents for sending remittance to the exporter, we will ensure that the remittance is done promptly.

3. Import Collection

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The exporter from overseas exports the goods to you. The overseas exporter / exporter's bank sends the documents to HDFC Bank on collection. We will then intimate you about the receipt of the documents. All you need to do is to authorize us to debit your a/c and send the remittance to the exporters bank.

If it is a sight bill (Documents against Payment), then the necessary documents and debit authority is collected from you and remittance is paid to the exporters bank and the documents are released to you. If it is a usance bill (Documents against Acceptance), then the acceptance letter is taken from you and the documents are released. On the due date remittance is made to the exporters bank by debiting your account.

4.Letter of Credit
In a business cycle, as a buyer you need to pay for your purchases in international and domestic markets. Our letters of credit helps you to facilitate purchase of goods in international and domestic trading operations. All our letters of credit issued are valued and accepted worldwide. We have dedicated trade finance desks spread throughout the country providing you the best of services thereby adding value to your business. Contact your relationship manager or just walk into any of our branches for these services.

EXPORTS SERVICES
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In today's highly competitive international trade, to be successful, the exporter has to offer good quality material at competitive rates and provide longer and liberal terms of credit to importers. Keeping this in mind, we at HDFC Bank offer a wide range of export services designed in making your export business hassle free. The facilities that are offered for the exporters are:

Export Collection Export Advance Payment

Export Collection
When you export the goods overseas, you need to receive payment for the goods that has been exported. Therefore, through our vast network of correspondent banks we ensure faster collection process for all your export bills provided all the necessary documents are in place, which will be sent to overseas bank for collection.

Export Advance Payment

You might require that the importer overseas to make advance payment for the goods that he is importing. You can ask you importer to send the payment to any of our vast network of branches. The payment will be credited to your account promptly and we will provide you the best competitive rates for your remittances. We have dedicated trade finance desks spread throughout the country providing you the best of services thereby adding value to your business. Contact your relationship manager or just walk into any of our branches for these services.

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Bank Guarantee

For your various business obligations you need to provide bank guarantees. We issue bank guarantee on your behalf under any business contract and help fulfill your business requirements. We have dedicated trade finance desks spread throughout the country providing you the best of services thereby adding value to your business. Contact your relationship manager or just walk into any of our branches for these services.

Outward Remittances

Outward Remittances (Miscellaneous) for other purposes can be remitted with ease. Remittances by way of DD / TT / Swift can be effected through our strong network of correspondent banks to any part of the world. All transactions are subjected to FEMA regulations. Note: Documents for Outward Remittances may vary depending on the regulatory requirement of the transaction

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How to calculate Terms & Conditions

The Forex Calculator is a currency converter that allows you to calculate the amount at which you can buy or sell Foreign Currency using the daily retail exchange rates offered by HDFC Bank. Choose whether you wish to buy or sell from us: Buy Sell

Note: All conversions will be to Indian Rupees (INR)

Amount

Please follow the below steps to use the Forex Calculator: Page 162

Select whether you want to "Buy" or "Sell" Select the required type of Product to buy or sell (Cash/Travelers Cheque/Demand Drafts/Telegraphic Transfers) Select the Currency Input Amount for Conversion Click on "Calculate" Click "Clear" after the results of the conversion are shown to reset the fields and calculate again.

Terms & Conditions

"Exchange rates mentioned above are indicative. Applicable rate will be as on the day of conversion. They are subject to change as per market conditions."

RBI GUIDELINE
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Forex Facilities for Residents (Individuals) (As on Oct 1, 2003)

Private Travel
Foreign exchange up to US$ 10,000 is permissible in any calendar year for tourism or private travel to any country other than Nepal and Bhutan on the basis of self-certification. When traveling to Nepal and Bhutan, you can carry as much Indian currency as you wish, except currency notes with denominations of Rs.500 and above. Study Abroad / Medical treatment abroad / Employment abroad / Emigration / Maintenance of close relatives abroad Foreign exchange up to US$ 100,000 is permissible on the basis of self-certification. For students the limit of $100,000 is applicable for each academic year. For medical treatment in addition to $100,000, foreign exchange up to US$ 25,000 can be taken for meeting boarding/lodging/travel expenses of the patient and also for the accompanying attendant on selfcertification. Amounts in excess of the limits can be released on basis of documentary evidence of requirement.

Remittance for Miscellaneous Purposes up to US$ 5000

Remittances can be made up to US$ 5000, for any miscellaneous purpose, without furnishing documents. Donations Donations can be made to anybody up to US$ 5,000 every year per remitter on self certification.

International Credit Cards

International Credit Cards can be used for:

meeting expenses or making purchases while abroad without any limit. making payments in foreign exchange for purchase of books and other items through the Internet.

Residents holding a foreign currency account in India or with an overseas bank, are free to obtain ICCs issued by overseas banks and other reputed agencies. Page 164

Surrender of Foreign Exchange on Return

Foreign exchange up to US$ 2,000, in the form of foreign currency notes or travellers' cheques (TCs) can be retained indefinitely for future use. Amounts in excess of $2000 have to be surrendered to a bank within 90 days and TCs within 180 days of return or credited to RFC(D) account. Foreign coins can be retained indefinitely without any limit. Resident Foreign Currency (Domestic) Account Residents can open Resident Foreign Currency (Domestic) Account with a bank in India for crediting:

unspent balances after travel abroad currency ,TCs, bank drafts received as gifts from or for services rendered to non resident while in India foreign exchange earnings received, through banking channel, as honorarium, consultancy, royalty, for any services or towards exports of goods

RFC(D) accounts are NOT interest bearing and there is no ceiling on the balances that can be built up in these accounts. The balances held in these accounts can be used for any purpose for which foreign exchange can be bought from a bank in India. Liberalised Remittance Scheme of USD 100,000/- for Resident Individuals RBI has recently come out with a scheme vide their circular AP (Dir. Series) Circular no 51 dated 08th May 2007, whereby individuals may remit up to USD 100,000/- per financial year for any current or Capital account transaction or a combination of both.

Eligibility
All Resident individuals are eligible to avail of the facility under the scheme. This facility is not available to Corporates, Partnership firms, HUF, Trusts etc. Page 165

Purpose
This facility is available for making remittance up to USD 100,000/- per financial year for any current or Capital account transactions or a combination of both. Under this facility, Resident Indians will be free to acquire and Hold immovable property or shares or any other asset outside India without prior approval of the Reserve Bank of India. Individuals will also be able to maintain and hold foreign currency accounts with a bank outside India for making remittances under the scheme without prior approval of the Reserve Bank of India. The foreign currency account may be used for conducting transactions connected with or arising from remittances eligible under the scheme. Please note that this facility is available in addition to those already available for private travel, business travel, donations, studies abroad, medical treatment etc. as described in the Schedule III of FEMA (current account transactions) Rules 2000.

The remittance under this scheme is not available for the following:
i. Remittance for any purpose specifically prohibited under Schedule-I (like purchase of lottery/sweep stakes, tickets proscribed magazines etc) or any item restricted under Schedule II of Foreign Exchange Management (Current Account Transactions) Rules, 2000. ii. iii. Remittances made directly or indirectly to Bhutan, Nepal, Mauritius or Pakistan. Remittances made directly or indirectly to countries identified by the Financial Action Task Force (FATF) as "non co-operative countries and territories" viz. Cook Islands, Egypt, Guatemala, Indonesia, Myanmar, Nauru, Nigeria, Philippines and Ukraine. iv. Remittances directly or indirectly to those individuals and entities identified as posing significant risk of committing acts of terrorism as advised separately by the Reserve Bank to the banks.

Procedure to be followed to effect remittances under this category:

When a customer approaches a branch for a remittance under this Scheme the following procedures must be followed:

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a. The customer must designate a branch of an Authorised Dealer through which all remittances under this scheme will be transacted. This is incorporated in the Format declaration itself (Schedule A) and needs to be filled in by the customer. b. The customer who needs to make this remittance will furnish the following documentation.

RBI prescribed letter cum declaration in the format as per Annexure A. regarding the purpose of the remittance and declaration that the funds belong to the remitter and will not be used for any of the restricted purposes as stated above

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Liberalised Remittance Scheme for Resident Individuals- Enhancement of limit from USD 100,000 to USD 200,000
Circular No RBI/2007-08/146 A. P. (DIR Series) Circular No.9 dated September 26, 2007 1. Attention of Authorised Dealer Category - I (AD Category - I) banks is invited to A. P. (DIR Series) Circular No. 51 dated May 8, 2007 on the Liberalised Remittance Scheme for Resident Individuals (the Scheme). 2. With a view to further liberalize the Scheme it has been decided, in consultation with the Government of India, to enhance the existing limit of USD 100,000 per financial year to USD 200,000 per financial year (April - March) with immediate effect. Accordingly, AD Category-I banks may now allow remittance up to USD 200,000, per financial year, under the Scheme, for any permitted current or capital account transaction or a combination of both. 3. All other terms and conditions mentioned in A. P. (DIR Series) Circular No. 64 dated February 4, 2004, A. P. (DIR Series) Circular No. 24 dated December 20, 2006 and A. P. (DIR Series) Circular No. 51 dated May 8, 2007 shall remain unchanged.

4. Necessary amendments to Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000 (Notification No. FEMA 1/2000- RB dated 3rd May 2000) are being notified separately. 5. AD - Category I banks may bring the contents of this circular to the notice of their constituents and customers concerned. 6. The directions contained in this Circular have been issued under Section 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and is without prejudice to permissions / approvals, if any, required under any other law.

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Forex limit
Retail Foreign Exchange Sale Limits at a glance.
Purpose Basic Travel Quota (BTQ) For Holidays, Personal vists etc Limit USD $10,000.00 per financial year Documentation Application Form, Form A2 and Self Declaration Application Form with authorisation Business Travel USD $25,000.00 per Trip from the Company, Form A2, Letter from the Company stating that the employee is going abroad on business with details of places of stay Immigration - For people who settle abroad in countries like Canada, New Zealand etc. Employment Abroad - For a person who is going to work abroad USD $100,000.00 per year USD $100,000.00 per year Application Form, Form A2 and Self Declaration

Application Form, Form A2 and Self Declaration

Medical Treatment - For people USD who are travelling abroad for treatment Studies Abroad - For students pursuing studies abroad $100,000.00 per year USD $100,000.00 per academic year USD $100,000.00 per year USD 200,000/-

Application Form, Form A2 and Self Declaration

Application Form, Form A2 and Self Declaration

Maintenance of close relatives abroad Investments overseas in shares,

Application Form, Form A2 and Self Declaration Application form, Declaration for purchase of foreign exchange under the Page 169

property, Gifts & Donations etc per financial

(under liberalised remittance sche me only)

liberalised remittance scheme of USD year 200,000 and Form A2 (Only for Individual residents a/c holders)

Important points to note:

Out of the overall foreign exchange being sold to a traveller, exchange in the form of foreign currency notes and coins may be sold up to the limit indicated below: i. Travellers proceeding to countries other than Iraq, Libya, Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States - not exceeding USD 3000 or its equivalent. ii. iii. Travellers proceeding to Iraq or Libya - not exceeding USD 5000 or its equivalent Travellers proceeding to Islamic Republic of Iran, Russian Federation and other Republics of Commonwealth of Independent States - full exchange may be released.

HDFC Bank offers American Express Travellers Cheques

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SWOT ANALYSIS
Strengths
HDFCBank is Second largest private bank in India, having1412 Branches and over 3275 ATMs across 528 cities at march end 2010 . Net profit grows on YOY basis by 41% from Rs. 1,590 crore as on 2008-2009to Rs.2,245 crore as on 2009-2010.

Total no. of employs closed to 80,000 people.that is lessthan SBI but more than ICICI bank(in the private sector, only only larger group such as the Tatas, Birlas, or relianceemployee. )

Cost to income ratio at 53.6% was one of the highest amongst private Bank in FY09(It was 45%AXIS& ICICI Banks).

At marchend 2009Total Bank depositis 44% of the bank deposit based (better than SBIs 42%,and ICICI Banks 25% only).

The CBoP merger has led to anet worth accretion of about Rs.1,34 crore v/s CBoPs Net assets of approximately Rs. 2,090 crore.

Stock of NPAs shot up by 119 % to Rs.1,988 crore during the further quarter ended. Interest from investments income20.42 % and interest from advances make up for over 61.85% income in 2009-2010. Profit after tax for financial year 2010 was Rs. 2,245 crore. Total advances was Rs.63,427 crore as on 2008-09 increase to Rs,9,8883 as on20092010. Page 171

Total deposits was Rs,1,00,769 crore as on 2008-09,increase to Rs,1,42,813 crores on 2009-2010. Capital Adequacy Ratio(CAR) grows on YOY Basis by 13.60 % as on 2007-08 to15.10 % as on2009-2010.

There are 40 branches posted anet profit of Rs ,2,100 crorefor 2009-2010 by comparison

Younger generation of customers targeted through IT enabled product and service ;

--Online trading of shares --Online fund transfer, --online payments of taxes --phone banking --internet banking --E-shopping

Weakness
In this booming market where we need to capture the mind of customerby providing them with new global facility and service should be available everywhere .if we talk about SBI it have 36 ATMs UBI 18 ATMs where asHDFC Bank has only 4 ATMs and 3 Branch. Some customer are not satisfied about banking services and facilities. It have not goods channels in rural and semi- urban area it wastotally cover to city and multi-

city area. but Nationalized bankcover total area. It have only 1,412 branches across only 528 cities in India compare to other competitors

bank it is very few and does not cover to over all India.

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HDFC Bank has ICICI,IDBI,AXIS,SBI,PNB,BOB,UBI, Ing-Vesya,Standard Charter , ABN-

AMRO,and CITY BANK,as competitors which are more powerful in terms of secured market. Opportunity Where all banks re facing problems Lehman brothers ,Bank of America , Merrill lynch was insolvency allover world economic condition is very bad .market was be decrease day-by-day. 28 HDFC is a bank which is strongenough to run properly in this competitive market. As being a private sector bank it is fresh from all kinds of rumors o ithas got a new channel to makes its reputation before customer. For example many international bank have faced a tragedy of being defame in the view of customers. HDFC Bank can service is very goods compare the other private sector and nationalized

bank. It canprovide the easy loan facility to the customer andan make aproper goodwill. It have nice chance to spread its branches over small city andsub-urban over of India. Domestic consumption continues to drive growth. India is expected to be least impacted due to the global slowdown due to its diverse economic base and favourable demographics. The Company has focused on direct to consumer lending, innovative structuring of credit solutions, strong processes and prudent risk management. The company follows a micro market approach to geographic segmentation of markets.The company plans to expand its product portfolio by adding General Insurance services and Investment! Savings Products such as sale of Mutual funds to its portfolio.

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Threat
The markets will continue to mature leading to rising expectation from consumers and your Companys growth will depend on its ability to differentiate its products ! services to compete effectively. Growth of the companys asset book, quality of assets and ability to raise funds depends significantly on the economy. Unfavourable events in the Indian economy can affect consumer sentiment. Changes in Government policy, regulatory framework could impact the companys operations. Recently many private banks have faced a great losses and some international banks was insolvencydue to bad economic condition .and now they will be in the market with different strategy so now to look for the innovation and try to find out the weakness of these banks. Still HDFC Have not got a very good service channels so it ,needs to improve its service and increase the no.of its channels HDFC Bank staff is very few according to customer service compare to other banks so it need to increaseour staff and opennew branch recently. Irrational pricing, lenient credit norms in the past have led to increase in Non-performing assets across the retail lending space.

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CHAPTER 3:RESEARCH

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METHODOLOGY

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RESEARCH METHODOLOGY
Research methodology is the Procedure adopted for conducting the research study. Research methodology should be carefully planned as the accuracy reliability and adequacy of results is totally depend on the Research Methodology followed. It gives the researcher a guideline by which he/she can decide which techniques and procedures will be applicable to a given problem. Moreover it helps in the evaluation of research by other also. So for the research to be successful, purposeful and effective the researcher should plan the Research Methodology before preceding the study. The following aspect should be considered while designing a Research Methodology.

Research Problem.
The first step while conducting a research is to carefully define a problem As the report emphasis on the HDFC its forex products and services

Research Design :
A research study conducted scientifically has a specific framework of research from the problem identification to the research study. The framework of conducting the research is known as Research Design. Research Design is the blue print of any problem. It is a plan for collection, analysis and interpretation of data in a manner that is relevant to the research purpose with economy in procedure. After defining the research problem in a clear-cut terms it will be required to prepare such a research design which will state the conceptual structure within which the research would be conducted.

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The research study presently done is both subjective The study is subjective because. 1- The sampling technique was convincing sampling. 2- The project undertaken is completely based upon the secondary data - the internal sources: sales invoice, External sources Magazines, internet, journals, news paper, websites etc. 3- A new field of research has been approached which was earlier not tested.

Data collection :
The task of data collection begins after a research problem has been defined and research design has been chalked out while decided about the method of data collection to be used for the study we must know that there are basically two types of data Primary data and Secondary data. In the present study only secondary data has been incorporated.

Secondary Data:
The secondary Data has been collected from The data collected for the project undertaken gives the information about the sales measures and practice applied for selling the goods. The data has been allocated from various information channels like companys websites about the products and offers & different strategies, business magazines ,news websites etc.

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Sampling Population
For conducting the research study the population covered or the universe selected was the staff of HDFC Bank.

Sample size:
Using convinces sampling technique the sample size which observation and unstructured interview and feedback were taken.

Methods of collecting data

The data used in this research were collected through the following sources: 1. Data was retrieved from online registered websites. 2. From the management report of companies on internet. 3. By interaction with forex consultants at HDFC bank. 4. From online electronic goods websites. 5. From other literature available at the company. 6. From literature available at websites.
7. Journals and newspapers. 8. Interaction with sales person.

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CHAPTER 4:-

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DATA ANALYSIS
DATA ANALYSIS
1. What are the Mutual fund s under management of your company in Lucknow or A whole? UTI MUTUAL FUND FRANKLIN TEMPLETON MUTUAL FUND HSBC MUTUAL FUND HDFC MUTUAL FUND RELIANCE MUTUAL FUND Rs. 67978 Rs. 25473 Rs. 9661 Rs. 78198 Rs. 108332

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38%

23%

27%
UTI MUTUAL FUND

9% 3%

FRANKLIN TEMPLETON MUTUAL FUND HSBC MUTUAL FUND HDFC MUTUAL FUND RELIANCE MUTUAL FUND

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2. What is the proportion of equity in the Mutual fund ? 0 -20% 20- 40% 40-60% 60-80% 80-100% 0 4 1 0 0

20%

0%

80%

0 -20%

20- 40%

40-60%

60-80%

80-100%

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3. What is the proportion of Debt in the Mutual fund ? 0 -20% 20- 40% 40-60% 60-80% 80-100% 0 0 3 2 0

0% 40%

60%

0 -20%

20- 40%

40-60%

60-80%

80-100%

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4. What is the proportion of liquid in the Mutual fund s 0 -20% 20- 40% 40-60% 60-80% 80-100% 2 2 1 0 0

20%

0% 40%

40%

0 -20%

20- 40%

40-60%

60-80%

80-100%

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5. Who is the major sectoral contribution of your company? Agents Banks Distributors 2 1 2

40%

40%

20%

Agents

Banks

Distributors

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6. Percentage of market share of total Mutual Fund market? UTI MUTUAL FUND FRANKLIN TEMPLETON MUTUAL FUND HSBC MUTUAL FUND HDFC MUTUAL FUND RELIANCE MUTUAL FUND 10.13% 3.79% 1.44% 11.65% 16.15%

0.18 0.16 0.14 0.12 0.1 0.08 0.06 0.04 0.02 0

UTI MUTUAL FUND 3.79% 1.44% 11.65% 10.13%

16.15%

Series1 Series2

FRANKLIN HSBC MUTUAL HDFC MUTUAL RELIANCE TEMPLETON FUND FUND MUTUAL FUND MUTUAL FUND

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CHAPTER 5:FINDING AND CONCLUSION AND LIMITAION.

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FINDINGS
As per the study it has been observed that reliance mutual fund has the maximum portion of share in the mutual fund market as well HDFC and UTI mutual fund stands second position as per as portion of market is concern, where as Franklin and HSBC mutual fund are having the almost similar ratios in total market share. There fore it has been observed that the major competition lies between UTI and HDFC mutual funds and it has been noticed that both the companies can improve upon their performance in order to enhance their market share in total market.

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LIMITATIONS
1. The study is limited only to the analysis of different schemes and its suitability to different investors according to their risk-taking ability.

2. The study is based on secondary data available from monthly fact sheets, websites and other books, as primary data was not accessible.

3. The study is limited by the detailed study of various schemes of Five Asset Management Company.

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SUGGESTIONS AND RECOMMENDATION

The Asset Management Company must design the portfolio in such a way, to increase the returns.

The Asset Management Company must design the portfolio in such a way, to lessen the risk that is common in the market.

The Asset Management Company must dedicate itself, because it motivates the investors and potential investors to invest in Mutual Funds.

The Asset Management Company must manage the Fund efficiently and with dedication to earn the goodwill of the public.

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CONCLUSIONS
After interpreting the above data the following conclusions have been made

UTI Opportunities Fund:

It is a diversified aggressive equity fund. It is a open-ended equity scheme Since the ratio is high it implies the risk is high As the returns are more in UTI Opportunities compare to other Four Mutual fund It is suitable for investors looking for medium risk and moderate returns with in a time period of 1-3 years.

Franklin India Flexi Cap Fund:

It is a diversified equity fund. It is a open-ended equity scheme Since the ratio is high it implies the risk is high In Franklin the returns are more compare to other Three Mutual fund (HDFC, RELIANCE, HSBC)

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Reliance Equity Opportunities Growth Fund:

It is a diversified equity fund. It is a open-ended equity scheme Since the ratio is high it implies the risk is high In Reliance Equity Opportunities the returns are medium compare to other Mutual fund

HDFC Core & Satellite Fund:

It is a diversified equity fund. It is a open-ended equity scheme In HDFC the returns are low compare to other Mutual fund It is a value based fund It is a low risky fund

HSBC India Opportunities Fund: It is a diversified equity fund. It is a open-ended equity scheme In HSBC the returns are lesser than other Mutual fund It is a low risky fund

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QUESTIONNAIRE
1. Name of the company? 2. What are the Mutual fund s under management of your company in Lucknow or A whole?

3. What is the proportion of equity in the Mutual fund ? a. 0-20% b. 20-40% c. 40-60% d. 60-80% e. 80-100% 4. What is the proportion of Debt in the Mutual fund ? f. 0-20% g. 20-40% h. 40-60% i. 60-80% j. 80-100% 5. What is the proportion of liquid in the Mutual fund k. 0-20% l. 20-40% m. 40-60% n. 60-80% o. 80-100% 6. Who are the TOP 3 contributors of your company? a. b. c. 7. Who is the major sectoral contribution of your company? p. Agents q. Banks r. Distributors 8. Percentage of market share of total market? s. % Page 194

BIBLIOGRAPHY

Here I would like to present the names of the websites used for reference while preparing this report: Laymans Guide to Mutual Funds By OUTLOOK Mutual Funds Primer by ECONOMIC TIMES www.utimutualfund.com www.icicipru.com www.hdfcmutual.com www.birlamutual.com www.nseindia.com www.indiainfoline.com www.amfiindia .com www.moneycontrol.com www.bseindia.com www.yahoofinance.com Page 195

www.reliancecapital.com www.economictimes.com

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