FEDAI Rules- Rule 4, Merchanting Trade

RULE 4-Merchanting trade

1. Banks will make remittances or open letter of credit in favour of the overseas suppliers provided an advance remittance for the full value or an irrevocable letter of credit for the full value has been received/ opened in favour of the merchanting trader who is not a more financial intermediary.
2. Back-to-back letter will be treated as separate transaction and commission as per Rule 3 II.C. shall be charged to the customer.
3. The banks are allowed to fix Forward Purchase Contract if so desired by the merchant for the difference period of receipt of the proceeds of the on-sale.
4. If foreign currency remittance are received in advance from the overseas buyer, the banks may at the specific request of merchanting trade customer hold the foreign currency funds in their Nostro account without converting the amount into Indian Rupee till the date of payment to the overseas supplier. Bank shall not apply buying and selling rates of exchange. Commission at 0.25% shall not pay interest on such advance remittances or grant Rupee advances against foreign currency funds thus received.