Ethical Practice in Correspondent Banking

 Correspondent banks have a responsibility to maintain ethical practices when handling

information obtained from maintaining nostro accounts.
 Ethical conduct involves distinguishing between right and wrong and taking appropriate
actions.
 Correspondent banks should avoid from misusing any information acquired through their
maintenance of nostro accounts.
 It is crucial for correspondent banks to establish a clear separation between their own
commercial banking activities and their correspondent banking business.
 Unethical practices in correspondent banking relationships include actively persuading
customers of other banks to transfer their accounts and providing services directly to
these customers without the requesting bank's involvement.
 When a meeting is necessary between a customer of a nostro bank and the correspondent
bank, a representative from the nostro bank should be present to ensure transparency and
accountability.
 Example: ABC Bank, a correspondent bank, maintains nostro accounts (other’s bank) of
various international banks. They receive detailed information about the banks and their
customer profiles. To act ethically, ABC Bank ensures that this information is used only
for the intended purposes and not for any unauthorized activities. They follow rules that
stop them from persuading customers of other banks and keep in regular contact with
those banks when dealing with their customers.

Vostro Account Operations

 Vostro accounts are bank accounts held by overseas banks in local banks using the local
currency.
 While vostro and current accounts are both denominated in domestic currency, they have
distinct characteristics.
 Vostro accounts are subject to foreign exchange control guidelines set by the central
bank, whereas current accounts are not bound by these regulations.
 Credit risks exist in vostro accounts and require periodic assessment, unlike current
accounts that do not involve the same level of credit risk considerations.
 Besides credit risk, there are other important aspects to consider in vostro account
operations. Offering excellent customer service is crucial to ensure a positive relationship
with vostro account holders.
 Suitable fees and service charges should be recovered from vostro account operations to
cover expenses and maintain profitability.
 Example: XYZ Bank, a local bank in France, maintains a vostro account for ABC Bank,
an overseas bank based in the United Kingdom. The vostro account is denominated in
Euros (EUR) and complies with the foreign exchange control guidelines set by the Bank
of France. XYZ Bank regularly assesses the credit risks associated with the vostro
account to manage its exposure effectively. Additionally, they provide prompt customer
service to ABC Bank and ensure that appropriate fees and service charges are recovered
for the services rendered to maintain a sustainable business relationship.

NOSTRO Account:

 A NOSTRO account is a bank account held by a domestic bank in a foreign bank,

denominated in the foreign currency.
 The domestic bank holds the NOSTRO account to facilitate its foreign transactions and
handle foreign currency operations.
 It allows the domestic bank to receive and make payments in the foreign currency,
serving as a gateway for international banking activities.
 Example: ABC Bank in the United States has a NOSTRO account in XYZ Bank in the
United Kingdom, holding British Pounds (GBP). ABC Bank uses this account to conduct
its business operations in the UK, such as receiving GBP payments from UK clients and
making GBP payments to UK vendors.

VOSTRO Account:
 A VOSTRO account is a bank account held by a foreign bank in a domestic bank,
denominated in the domestic currency.
 The foreign bank holds the VOSTRO account to facilitate its local operations in a foreign
country and access domestic banking services.
 It allows the foreign bank to receive and make payments in the domestic currency,
enabling it to serve its local customers effectively.
 Example: XYZ Bank, a bank based in India, holds a VOSTRO account in ABC Bank, a
bank in the United States, denominated in US Dollars (USD). XYZ Bank uses this
account to conduct its business operations in the US, such as receiving USD payments
from US clients and making USD payments to US vendors.
 Unit: 3 Basic of Exchange Rate

Meaning of Exchange Rate:

The exchange rate refers to the value of one currency in terms of another currency. It represents
the rate at which one currency can be exchanged for another. Exchange rates fluctuate constantly
and are determined by various factors, including supply and demand dynamics, interest rates,
inflation, geopolitical events, and market sentiment.

Exchange rates play a crucial role in international trade and finance, as they determine the cost of
goods and services when transacting across different currencies. For example, if the exchange
rate between the U.S. dollar and the euro is 1.2, it means that one U.S. dollar can be exchanged
for 1.2 euros.

Exchange rates can be quoted in two ways: direct and indirect. In a direct quote, the domestic
currency is expressed as a fixed amount of foreign currency. For instance, if the exchange rate is
$1 = €0.85, it means one U.S. dollar is equivalent to 0.85 euros (Here euro is home currency). In
an indirect quote, the foreign currency is expressed as a fixed amount of domestic currency, such
as €1 = $1.18, indicating that one euro is equivalent to 1.18 U.S. dollars.

Exchange rates have a significant impact on various aspects of the economy, including trade
balances, tourism, investment flows, and inflation. Fluctuations in exchange rates can affect the
competitiveness of a country's exports and imports, influence the profitability of multinational
corporations, and impact the purchasing power of individuals and businesses engaged in
international transactions.

Factor Affecting Exchange Rate

Several factors can influence exchange rates. Here are some of the key factors:

1. Interest Rates: Divergence or Deviation in interest rates between countries can affect
exchange rates. Higher interest rates tend to attract foreign investors seeking better
returns, which increases demand for the currency and strengthens its value.
2. Inflation: Differences in inflation rates between countries can impact exchange rates.
Countries with lower inflation rates generally experience an appreciation in their
 currency's value, while countries with higher inflation rates may see their currency
depreciate.
3. Economic Performance: Strong economic performance, including indicators like GDP
growth, employment rates, and productivity, can attract foreign investment and increase
the demand for a currency, thereby strengthening its exchange rate.
4. Political Stability: Political stability and confidence in a country's government can
influence exchange rates. Countries with stable political environments are generally seen
as safer investment destinations, which can attract foreign capital and strengthen the
value of their currency.
5. Balance of Trade: A country's balance of trade, which compares its exports to its
imports, can affect exchange rates. A trade surplus (exports exceeding imports) can
increase demand for a currency, while a trade deficit may lead to a depreciation of the
currency.
6. Market Speculation: Speculative activities in the currency markets can have short-term
effects on exchange rates. Traders and investors may buy or sell currencies based on their
expectations of future price movements, which can impact supply and demand dynamics.
7. Government Intervention: Central banks and governments can directly intervene in the
foreign exchange market to influence exchange rates. They may buy or sell their own
currency or adjust interest rates to achieve desired economic outcomes.
8. Geopolitical Factors: Political events, such as elections, policy changes, geopolitical
tensions, or trade disputes, can cause volatility in exchange rates as they create
uncertainty and affect investor confidence.

Predict Exchange Rate Trends

Predicting exchange rate trends with accuracy is challenging due to the complex nature of the
foreign exchange market. However, here are some common methods and factors that analysts
and traders use to make exchange rate predictions:

1. Fundamental Analysis: Fundamental analysis involves evaluating economic indicators,

such as GDP growth, inflation rates, interest rates, trade balances, and fiscal policies, to
assess the overall health and outlook of an economy. By analyzing these factors, analysts
try to predict how they will impact exchange rates in the long term.
2. Technical Analysis: Technical analysis involves studying historical price and volume
data of currency pairs to identify patterns and trends. Traders use various tools and
indicators, such as moving averages & trendlines, to make predictions based on price
patterns and market behavior.
3. Interest Rate Differentials: Interest rate differentials between countries can influence
exchange rates. Higher interest rates tend to attract foreign investors seeking better
returns, increasing demand for the currency and strengthening its value. Therefore,
monitoring changes in interest rates and central bank policies can provide insights into
future exchange rate movements.
4. Market Sentiment and Speculation: Sentiment analysis involves assessing market
participants' attitudes, expectations, and risk appetite. Monitoring investor sentiment and
speculator positioning can provide insights into potential shifts in exchange rates.
5. Political and Geopolitical Events: Political events, elections, policy changes, and
geopolitical tensions can impact exchange rates. Monitoring news and developments
related to these events can help predict short-term exchange rate movements.
6. Econometric Models: Some analysts use econometric models that incorporate historical
data and mathematical formulas to predict exchange rate trends. These models often
consider a range of variables, such as economic indicators, interest rates, and market
sentiment, to generate forecasts.
7. Machine Learning and Artificial Intelligence: Advanced techniques, such as machine
learning and artificial intelligence, can be applied to analyze vast amounts of data and
identify patterns that humans may not easily recognize. These methods can help generate
predictive models based on historical data and real-time market information.

It's important to note that predicting exchange rates accurately is challenging, and there is no
foolproof method. Exchange rates are influenced by multiple unpredictable factors and can
be subject to sudden and unexpected changes.

Cross Rate:

Cross rates are exchange rates that are determined by comparing the exchange rates of two
different currencies with a third currency. It is the rate at which one currency can be
exchanged for another currency, bypassing the common practice of converting both
currencies into a common base currency.

Cross rates are particularly relevant when dealing with currencies that are not widely traded
or when the desired currency pair does not have a direct exchange rate available. They are
calculated using the exchange rates of the currencies involved and can be derived from their
respective exchange rates against a third currency, which serves as the base currency.

Here's an example to illustrate a cross rate calculation:

Let's say you want to determine the exchange rate between the Japanese yen (JPY) and the
British pound (GBP), but there is no direct exchange rate provided. However, you know the
exchange rates of both currencies against the US dollar (USD):

USD/JPY = 110.50 (1 US dollar is equivalent to 110.50 yen) USD/GBP = 0.72 (1 US dollar

is equivalent to 0.72 pounds)

To calculate the JPY/GBP cross rate, you divide the yen/dollar rate by the pound/dollar rate:

JPY/GBP = (USD/JPY) / (USD/GBP)

JPY/GBP = 110.50 / 0.72 JPY/GBP ≈ 153.47

Therefore, the cross rate for JPY/GBP is approximately 153.47, indicating that 1 Japanese
yen is equivalent to 153.47 British pounds.

Cross rates play a significant role in international financial transactions, especially when
trading currencies outside the major ones, such as the US dollar, euro, or British pound. They
enable market participants to engage in foreign exchange transactions efficiently, even when
there is no direct exchange rate available between the desired currency pairs.

Cross rates are used for several reasons in foreign exchange transactions:

Currency pairs without direct exchange rates: Cross rates allow for the conversion
between two currencies that may not have a direct exchange rate available. This is
particularly useful when dealing with less commonly traded or exotic currencies.

Efficient currency conversions: Cross rates enable market participants to bypass the need to
convert currencies into a common base currency before making the desired exchange. This
simplifies the process and reduces costs and potential losses associated with multiple
conversions.

Arbitrage opportunities: Cross rates can uncover arbitrage opportunities in the foreign
exchange market. If the cross rate calculated differs significantly from the market's quoted
rate, traders can take advantage of the discrepancy by buying or selling the currencies
involved to make a profit.

International trade and investment: Cross rates facilitate international trade and
investment by providing a means to convert currencies directly between two countries, even
if the currencies are not widely traded or have restricted access to the foreign exchange
market.

Hedging and risk management: Cross rates play a crucial role in hedging strategies and risk
management for businesses operating in multiple currencies. They allow companies to assess
the exchange rate risk accurately and make informed decisions regarding currency exposure.

One-way quote and Two-way quote

In foreign exchange markets, there are two types of quotes commonly used: one-way quotes
and two-way quotes.

One-way quote: A one-way quote in foreign exchange represents a single exchange rate
provided for a currency pair, without distinguishing between the buying rate (bid) and the
selling rate (ask). In this type of quote, the same rate is applicable for both buying and selling
the base currency. For instance, consider the one-way quote for NPR/INR as 1 NPR = 0.62
INR. This means that 1 Nepalese Rupee can be exchanged for 0.62 Indian Rupees, regardless
of whether you are buying or selling. The one-way quote eliminates the need to differentiate
between bid and ask prices, providing a single rate for simplicity.

Two-way quote: A two-way quote provides both the buying rate (bid) and the selling rate
(ask) for a currency pair. It includes two rates, one for buying the base currency and one for
selling it. For example, a two-way quote for the EUR/USD currency pair could be
1.1750/1.1755, where 1.1750 represents the buying rate and 1.1755 represents the selling
rate. In this case, if you want to buy euros, you would pay 1.1755 US dollars for 1 euro. If
you want to sell euros, you would receive 1.1750 US dollars for 1 euro.

The two-way quote is more common and provides greater transparency as it shows both the
buying and selling rates, allowing participants to know the spread (the difference between the
bid and ask prices). The spread represents the profit margin for the entity quoting the rates.

Bid and ask rates

Bid and ask rates, also known as bid-ask prices or buy/sell prices, are commonly used in
financial markets, including foreign exchange. These rates represent the prices at which
market participants are willing to buy or sell a particular currency pair.

Bid Rate: The bid rate, also known as the buying rate, represents the price at which the
market participant is willing to buy the base currency in the currency pair. It is the rate at
which you can sell the quote currency and receive the base currency in return.

Ask Rate: The ask rate, also known as the selling rate, represents the price at which the
market participant is willing to sell the base currency in the currency pair. It is the rate at
which you can buy the quote currency by paying the base currency.

Spread

In foreign exchange (forex) trading, the spread refers to the difference between the bid and
ask prices of a currency pair. It represents the cost of trading and serves as a profit margin for
brokers or market makers.

The bid price is the highest price (among various buyer) that buyers in the market are willing
to pay for a particular currency pair. On the other hand, the ask price is the lowest price
(among various sellers) at which sellers in the market are willing to sell the same currency
pair. The spread is calculated as the difference between the ask price and the bid price.

For example, if the bid price for the EUR/USD currency pair is 1.2000 and the ask price is
1.2005, the spread would be 0.0005 or 5 pips (pip is the smallest unit of price movement in
forex). In this case, if you were to buy the currency pair, you would do so at the ask price of
1.2005. If you were to sell the currency pair, you would receive the bid price of 1.2000.
The spread is an important factor for forex traders as it directly affects the overall cost of
executing trades.

Quoting Rates

When it comes to quoting foreign exchange rates, the two methods are as follows:

i) Indicative Rates: Indicative rates in foreign exchange refer to approximate or estimated

rates provided by financial institutions, banks, or currency exchange services. These rates are
not fixed or binding and serve as an indication of the current market conditions. Indicative
rates are typically provided for informational purposes and are subject to fluctuations due to
factors such as supply and demand, economic indicators, and geopolitical events. They give
an idea of the exchange rate at a given moment but may not reflect the actual rate at which a
transaction can be executed.

ii) Firm Rates: Firm rates, also known as fixed or guaranteed rates, are specific exchange
rates offered by financial institutions or currency exchange providers that are binding for a
certain period or transaction. These rates are agreed upon in advance and provide certainty to
both parties involved in the foreign exchange transaction. Firm rates are often used for larger
transactions, forward contracts, or when there is a need for guaranteed pricing. They offer
protection against fluctuations in the currency market during the specified period, ensuring
that the exchange rate remains constant as agreed upon.

It's worth mentioning that the availability of indicative rates and firm rates may vary
depending on the service provider, the currency pair being exchanged, and the specific
requirements of the transaction. Traders, businesses, and individuals can choose the most
suitable method based on their needs for information or certainty in foreign exchange
transactions.

Favorable and unfavorable rates

Favorable and unfavorable rates are terms used to describe the perceived desirability of
exchange rates in foreign currency transactions. Here's how they are typically understood:

Favorable Rate: A favorable rate refers to an exchange rate that is advantageous or

beneficial for the party involved in the transaction. It means that when converting one
currency into another, the party will receive a higher amount of the destination currency for
each unit of the source currency. For example, if the exchange rate for USD to EUR is 1.20, a
favorable rate for someone holding USD would be 1 USD = 1.25 EUR, as they receive more
euros for each dollar.

In the context of merchants, a favorable rate can provide cost savings, increased profitability,
or better pricing for their products or services when engaging in international trade or
currency conversions. Merchants often seek favorable rates to maximize their foreign
currency earnings or minimize their currency conversion costs.

Unfavorable Rate: An unfavorable rate, conversely, refers to an exchange rate that is

disadvantageous or less desirable for the party involved in the transaction. It means that when
converting one currency into another, the party will receive a lower amount of the destination
currency for each unit of the source currency. Using the same example, an unfavorable rate
for someone holding USD would be 1 USD = 1.15 EUR, as they receive fewer euros for each
dollar.

An unfavorable rate can increase costs, reduce profit margins, or make imported goods or
services more expensive for merchants. They may try to avoid unfavorable rates or take
measures to hedge against currency risk to protect themselves from potential losses.

It's important to note that the perception of favorable or unfavorable rates can vary depending
on the specific circumstances, market conditions, and individual objectives of the parties
involved in the foreign currency transaction. Merchants should carefully monitor exchange
rates, consult with financial experts, and consider their business needs to make informed
decisions regarding favorable timing for currency conversions.

Swaps

In foreign exchange, swaps refer to a specific type of financial transaction that involves the
simultaneous purchase and sale of currencies for two different value dates. A forex swap
involves two transactions that occur simultaneously but have different value dates. The first
leg of the swap is the spot transaction, where one currency is purchased and another currency
is sold for immediate delivery. The second leg is the forward transaction, where the
currencies are exchanged back at a pre-agreed rate and value date in the future. These
transactions are commonly known as foreign exchange swaps or forex swaps. Forex swaps
are primarily used for short-term financing or hedging purposes.

Purpose: The purpose of a forex swap is to provide temporary access to a different currency
or manage currency risk. It allows market participants to obtain short-term funding in a foreign
currency or hedge against potential exchange rate fluctuations during a specific period.

Forex swaps are commonly transacted between financial institutions, such as banks, central
banks, and other institutional investors. They can be conducted in the interbank market or
over-the-counter (OTC) market, where participants negotiate the terms directly or through
intermediaries.

Forex swaps play a crucial role in managing short-term currency exposures, facilitating
international trade, and providing liquidity in the foreign exchange market. They offer
flexibility and efficient access to different currencies, allowing market participants to meet
their financing needs or protect against currency fluctuations.

Example: Let's consider two fictional companies: Company A, based in the United States,
and Company B, based in the United Kingdom. Company A has a loan in U.S. dollars, while
Company B has a loan in British pounds. Both companies want to switch their loans to the
currency of the other company's loan. This is where a currency swap can be used.

Process:

Agreement: Company A and Company B enter into a currency swap agreement. The terms
and conditions of the swap are negotiated and agreed upon by both parties, including the
notional amounts, currencies, exchange rates, maturity dates, and payment frequency.

Initial Exchange: The initial exchange takes place, where Company A gives the agreed-
upon amount in U.S. dollars to Company B, and Company B gives the equivalent amount in
British pounds to Company A, based on the agreed-upon exchange rate.

Cash Flows: After the initial exchange, periodic cash flows occur between the two
companies. These cash flows are based on interest payments calculated on the notional
amounts. For example, Company A will pay interest to Company B based on the agreed-
upon interest rate and the U.S. dollar notional amount, while Company B will pay interest to
Company A based on the British pound notional amount.

Maturity and Final Exchange: At the maturity date of the swap, the final exchange occurs.
Company A gives back the British pounds to Company B, and Company B gives back the
U.S. dollars to Company A, based on the initial exchange rate.

Outright Forward Deals

Outright forward deals, also known as simply "forwards" or "forward contracts," are
financial agreements in which two parties agree to exchange a specific amount of one
currency for another currency at a predetermined exchange rate on a future date. These
contracts allow participants to lock in an exchange rate in advance, providing certainty for
future currency transactions. Outright forward deals are commonly used in foreign exchange
markets for various purposes, including hedging, speculation, and managing future payment
or receipt of foreign currencies.

Here are the key features and aspects of outright forward deals:

Agreement: Two parties, typically financial institutions or corporations, enter into an

agreement to exchange currencies at a future date, which is known as the maturity or
settlement date. The agreement specifies the currencies involved, the amount to be
exchanged, the agreed-upon exchange rate, and the maturity date.

Exchange Rate: The exchange rate agreed upon in an outright forward deal is fixed and
binding for both parties throughout the duration of the contract. It allows the parties to
eliminate the uncertainty of future exchange rate movements and helps them plan and budget
with more accuracy.

Maturity Date: The maturity date of an outright forward deal is the future date on which the
exchange of currencies occurs. It is predetermined at the time of entering into the contract.
The duration of the contract can vary from days to several years, depending on the needs and
preferences of the parties involved.
Settlement: On the maturity date, the parties fulfill the contract by physically exchanging the
agreed-upon currencies based on the predetermined exchange rate. The exchange usually
occurs through the respective banks or financial institutions involved in the transaction.

Non-Standardized Contracts: Unlike standardized futures contracts, outright forward deals

are typically customized to meet the specific requirements of the parties involved. The terms
and conditions of the contract, including the amount, currencies, and maturity date, are
negotiated between the counterparties.

Hedging and Speculation: Outright forward deals serve as important risk management tools.
They allow businesses to hedge against future exchange rate fluctuations by locking in a
specific rate for future transactions. Additionally, speculators can enter into outright forward
contracts to profit from anticipated movements in exchange rates.

Outright forward deals and Swaps

Outright forward deals and swaps are both financial instruments used in foreign exchange
transactions, but they differ in their structure, purpose, and key features. Here are the main
differences between outright forward deals and swaps:

Structure: Outright forward deals involve a single exchange of currencies at a

predetermined exchange rate on a future date. The transaction is settled at maturity, with both
parties exchanging the agreed-upon currencies. In contrast, swaps involve simultaneous
borrowing and lending of two different currencies between two parties. Swaps consist of
two legs: the initial exchange and the subsequent reverse exchange. The initial exchange
establishes the swap, while the reverse exchange unwinds the swap at a future date.

Cash Flows: In outright forward deals, there are no intermediate cash flows between the
initiation and settlement of the contract. The parties exchange the currencies and settle the
transaction at the predetermined maturity date. Swaps, on the other hand, involve periodic
cash flows during the life of the contract. These cash flows are typically based on interest
payments, calculated on the notional amounts of the currencies involved.

Purpose: Outright forward deals are primarily used to lock in an exchange rate for a future
transaction. They provide certainty and protect against adverse exchange rate movements.
Outright forward contracts are commonly utilized for hedging purposes, enabling businesses
to mitigate currency risk. Swaps, on the other hand, are often used for various purposes
beyond currency exchange, such as managing interest rate risk, accessing different
currencies, or achieving specific investment objectives.

Interest Rates: Outright forward deals do not directly involve interest rates. The exchange
rate is predetermined, and no interest payments are typically involved during the life of the
contract. In swaps, however, interest rates play a significant role. Swaps involve the
exchange of interest payments based on the notional amounts in different currencies. The
interest rates used can be fixed or floating, depending on the terms of the swap agreement.
Unit 4

International Remittances

International remittances refer to the transfer of money or resources by individuals who are
working or residing in a foreign country to their home country. These transfers are usually
made by migrants to support their families and loved ones back home. Remittances play a
significant role in the global economy and have both social and economic implications.

Remittances are an essential source of income for many developing countries. They
contribute to poverty reduction, education, healthcare, and overall economic development. In
some countries, remittances may even surpass official development aid and foreign direct
investment in terms of inflows. Remittances can be sent through various channels, including
banks, money transfer operators (MTOs), online platforms, and mobile money services. The
funds are usually sent in the form of cash, bank transfers, or digital transactions. The cost of
sending remittances varies depending on the service provider and the transfer method. It
typically includes fees, exchange rate margins, and other charges. High transaction costs can
significantly impact the amount received by the recipient. Many countries have regulations in
place to monitor and regulate remittance flows. These regulations aim to prevent money
laundering, fraud, and illicit financial activities. Compliance with these regulations may
require individuals and financial institutions to provide identification and transaction details.

Remittances can have a positive impact on the receiving country's economy. They can
stimulate consumption, drive investment, and contribute to foreign exchange reserves.
However, overreliance on remittances as a source of income can also make countries weak to
fluctuations in global economic conditions.

International remittances can be categorized into two main types: outward remittance and
inward remittance. Here's a brief explanation of each:
Outward Remittance: Outward remittance refers to the transfer of funds from an individual
or business in one country to a recipient located in another country. It involves sending
money across borders to a foreign beneficiary. Common reasons for outward remittances
include sending money to family members, making investments abroad, paying for education
or healthcare expenses, or conducting international business transactions.

Inward Remittance: Inward remittance, also known as inward funds transfer, is the process
of receiving money from abroad into a recipient's bank account in the home country. It
involves funds being sent from a foreign country to the recipient in the domestic country.
Inward remittances are typically received by individuals, businesses, or financial institutions
and can originate from various sources such as relatives, friends, employers, clients, or
overseas investments.

Instruments of Payment

Payment of import by export: This refers to a trade arrangement where the payment for
imported goods is made by the export of goods or services. It involves a barter-like exchange
of goods or reciprocal trade agreements.

Payment through transfer of bullion: In certain cases, particularly in the past, international
payments were made through the transfer of gold or silver in bulk. However, this method is
less commonly used today due to the prevalence of more convenient and secure electronic
payment systems.

Payment by currency transfer: i. Payment in Domestic currency: This involves settling

international transactions using the domestic currency of the country. The exchange rate is
applied to convert the foreign currency value into the domestic currency equivalent. ii.
Payment in foreign currency: In this case, the payment is made directly in the foreign
currency of the recipient. The payer converts their domestic currency into the foreign
currency at the prevailing exchange rate. iii. Payment in third currency: Occasionally, a
third currency may be used as a medium of exchange in international transactions,
particularly when both parties want to avoid fluctuations in their domestic currencies or have
mutually agreed on a specific currency.
Payment through Bank: i. Letter of Credit (LC): A letter of credit is a financial
instrument issued by a bank on behalf of a buyer (importer) to guarantee payment to the
seller (exporter) once certain conditions are met. It provides a secure method of payment and
mitigates the risk for both parties. ii. Payment through Draft: A draft is a written order by
one party (drawer) instructing another party (drawee) to pay a specified amount to a third
party (payee). Bank drafts or cashier's checks can be used for secure international payments.
iii. SWIFT: The Society for Worldwide Interbank Financial Telecommunication (SWIFT)
provides a secure network for banks to communicate and conduct financial transactions. It
facilitates the exchange of payment instructions and messages between banks globally. iv.
Digital Payment: With the advancement of technology, digital payment methods such as
online banking, mobile payment apps, and electronic fund transfers have become
increasingly popular for international transactions. v. Card Payment: Credit cards, debit
cards, and prepaid cards can be used for international payments. They offer convenience and
accessibility, allowing transactions to be made in foreign currencies with the exchange rate
applied. Vi. Money Order: Money orders are a type of payment instrument issued by a
postal service or a financial institution. They can be used for secure and reliable international
payments, similar to bank drafts. Postal offices in different countries can be coordinated for
money order services through various means. The coordination and cooperation between
postal offices allow for the issuance, acceptance, and processing of money orders across
borders.

Inland Versus Foreign Payment

Inland Payment: An inland payment refers to a financial transaction that takes place within
the borders of a single country. It involves parties located within the same country and
utilizes the local currency as the medium of exchange. Inland payments are subject to the
laws, regulations, and banking practices of the country where the transaction occurs. These
payments typically involve domestic trade, services, or transfers between individuals,
businesses, or financial institutions within the same national jurisdiction.

Foreign Payment: A foreign payment, also known as an international payment or cross-

border payment, refers to a financial transaction that involves parties located in different
countries. It encompasses the transfer of funds, goods, or services across national borders and
often necessitates the use of currencies other than the local currency of either party involved.
Foreign payments are subject to international regulations, foreign exchange laws, and the
specific requirements of both the sender's and receiver's countries. These payments can
involve various purposes, including international trade, remittances, investments, or cross-
border transactions between individuals, businesses, or financial institutions.

Comparison of Inland Payment and Foreign Payment

Geographic Scope:

Inland Payment: An inland payment refers to a transaction that occurs within the borders of a
single country. It involves parties located within the same country, and the payment is made
using the local currency.

Foreign Payment: A foreign payment, on the other hand, involves a transaction between
parties located in different countries. It includes cross-border payments where currencies
other than the local currency may be used.

Currency:

Inland Payment: In an inland payment, the local currency of the country where the
transaction is taking place is used. For example, if the transaction occurs within the United
States, the currency used would be the US dollar (USD).

Foreign Payment: In a foreign payment, the currency used can vary depending on the
countries involved. It may involve the use of multiple currencies to facilitate the transfer
between different nations.

Regulatory Considerations:

Inland Payment: Since an inland payment occurs within the borders of a single country, it is
typically subject to the regulations and laws of that particular country. These regulations may
include tax laws, domestic banking regulations, and any other relevant legal requirements.

Foreign Payment: Foreign payments involve international regulations and considerations.

These transactions are subject to foreign exchange regulations, international banking
standards, trade laws, and potentially additional fees or requirements imposed by both the
sender's and receiver's countries.

Documentation:

Inland Payment: In general, inland payments may require less documentation compared to
foreign payments. The documentation for inland payments typically includes invoices,
receipts, and other records relevant to the transaction within the country.

Foreign Payment: Foreign payments often involve more extensive documentation due to the
cross-border nature of the transaction. This may include additional paperwork such as
international wire transfer forms, customs documentation, and compliance with anti-money
laundering (AML) and know-your-customer (KYC) regulations.

Cost and Time:

Inland Payment: Inland payments tend to be less expensive and faster compared to foreign
payments. Since these transactions occur within the same country, there are usually fewer
intermediaries involved, resulting in lower transaction costs and quicker processing times.

Foreign Payment: Foreign payments often incur higher fees due to currency conversion
charges, intermediary bank fees, and potential differences in banking systems between
countries. The processing time for foreign payments may also be longer due to factors like
international clearing and settlement procedures, time zone differences, and additional
regulatory checks.

Location Of an Account

The location of an account refers to the country or jurisdiction where a bank account is held.
It represents the physical location or legal entity associated with the account. The location of
an account can have implications for various aspects such as banking regulations, taxation,
currency control, and legal jurisdiction.

For example, if an account is located in the United States, it would be subject to U.S. banking
regulations, tax laws, and the jurisdiction of U.S. courts. Similarly, if an account is located in
the United Kingdom, it would be subject to UK banking regulations, tax laws, and the
jurisdiction of UK courts.

The location of an account can affect international transactions and settlements as it may
impact factors such as currency conversion, fees, and compliance with local regulations. It
can also have implications for the ease of conducting business, accessing banking services,
and complying with legal and reporting requirements.

Nostro, Vostro, Loro and Mirror accounts

Nostro Account: A nostro account is an account held by a bank in a foreign currency in

another bank. The term "nostro" is derived from Latin, meaning "ours." From the perspective
of the bank holding the account, it is referred to as a nostro account. The purpose of a nostro
account is to facilitate international transactions and manage foreign currency holdings.
Banks open nostro accounts in foreign banks to have funds available in different currencies
and countries. These accounts allow banks to conduct foreign currency transactions, such as
sending and receiving payments in foreign currencies and facilitating trade with international
counterparties. For example, a bank in the United States may hold a nostro account in a
European bank denominated in Euros to handle Euro-denominated transactions and maintain
liquidity in that currency.

Vostro Account: A vostro account is an account held by a foreign bank on behalf of another
bank. The term "vostro" is also derived from Latin, meaning "yours." From the perspective of
the bank that owns the funds, it is referred to as a vostro account. Vostro accounts are
established to enable foreign banks to hold and manage funds on behalf of their
correspondent banks in other countries. These accounts represent the relationship between
the foreign bank and its correspondent bank, allowing the foreign bank to provide services
and conduct transactions in the local currency of the correspondent bank's jurisdiction. For
example, a bank in India may hold a vostro account for a U.S. bank to facilitate transactions
and manage funds in Indian Rupees, allowing the U.S. bank to access the Indian market and
conduct transactions smoothly.

Loro Account: A loro account, which means "theirs" in Italian, is an account held by one
bank in another bank on behalf of a third party. In this arrangement, the bank holding the
account acts as an intermediary, facilitating transactions and settlements between two other
banks. The loro account allows a bank to provide services to its correspondent bank's
customers in a specific jurisdiction without establishing a physical presence there. It enables
the correspondent bank's customers to access banking services in a foreign country through
their own bank. The bank holding the loro account acts as an agent or custodian, following
instructions from the third-party bank and executing transactions on behalf of the third party.
Loro accounts are commonly used in correspondent banking relationships, where banks
cooperate to extend their services and geographic reach to better serve their clients'
international banking needs.

Mirror Account: A mirror account refers to an account that reflects the transactions and
balances of another account. It is typically used to provide real-time or near-real-time updates
and synchronization of account information. The mirror account is set up to replicate the
transactions and balances of the primary account, allowing multiple parties or systems to
access and monitor the same account information simultaneously. This can be particularly
useful in cases where there is a need for accurate and timely account data across different
entities or platforms. For example, a mirror account may be used to provide centralized
access to account information for internal departments within a bank or to allow third-party
service providers to access and process transaction data while maintaining the integrity of the
primary account.

International Settlement Process

In the international settlement process, when a bank in one country wants to transfer funds to
another country, it typically opens a nostro account in the foreign currency with a bank in the
destination country.

In example, if a bank in Nepal, such as NBL, wants to transfer funds to India, it would need
to open a nostro account denominated in Indian currency (INR) with an Indian bank like SBI
Bank. The nostro account allows the Nepalese bank to hold funds in Indian currency and
conduct transactions in that currency.

Once the nostro account is set up, the Nepalese bank can send payment instruments, such as
checks, drafts, or electronic transfers, designated in Indian currency directly to the Indian
bank (SBI Bank) with a request to credit the proceeds to the Nepalese bank's nostro account.
The Indian bank will then process the payment instruments and credit the funds, minus any
charges and service fees, to the Nepalese bank's nostro account with them.

The nostro account acts as a clearing account for the Nepalese bank, enabling it to receive
and hold funds in Indian currency, which can be used for various purposes such as fulfilling
payment obligations to customers, conducting foreign exchange transactions, or making
further transfers to other banks in India.

Draft In International Banking

In international banking, a draft refers to a negotiable instrument used for making payments
between parties in different countries. It is commonly known as a banker's draft, bank draft,
or simply a draft.

A draft is similar to a check but is typically used for international transactions. It is a written
order issued by one bank, known as the issuing bank or drawer, to another bank, known as
the paying bank or drawee, instructing the drawee bank to pay a specified amount to a
designated beneficiary or payee. The payment is made in the currency specified on the draft.

Here are the key parties involved in a draft transaction:

Drawer: The drawer is the party issuing the draft, typically a bank. The drawer's bank
account is debited for the amount specified on the draft, and the bank issues the draft to the
beneficiary or their bank.

Drawee: The drawee is the bank on which the draft is drawn, usually located in the
beneficiary's country. The drawee bank is instructed to make the payment to the beneficiary
when the draft is presented.

Beneficiary/Payee: The beneficiary is the party or entity designated to receive the payment.
It can be an individual, a company, or any other recipient specified by the drawer.

The process of using a draft in international banking involves the following steps:
Issuance: The drawer bank prepares the draft, specifying the amount, currency, beneficiary,
and any other relevant details. The drawer's bank account is debited for the draft amount,
including any associated fees.

Transmission: The draft is typically sent to the beneficiary's bank through secure channels,
such as international courier services or electronic means, to ensure safe delivery.

Presentation: The beneficiary or their bank presents the draft to the drawee bank for
payment. The draft may need to be accompanied by supporting documents, such as invoices
or shipping documents, depending on the nature of the transaction.

Payment: Upon verification and acceptance of the draft, the drawee bank makes the payment
to the beneficiary or their bank. The funds are typically credited to the beneficiary's bank
account or made available in another agreed-upon manner.

Drafts are widely used in international trade and commerce, providing a secure and reliable
method of payment. They offer assurance to the beneficiary that payment will be made by the
issuing bank, as long as the draft is properly presented and meets the specified conditions.

Cheque Books from Correspondents

In international banking, it is not common for individuals or businesses to obtain checkbooks
from correspondent banks directly. Correspondent banking relationships are established
between banks to facilitate various financial services and transactions, such as payment
processing, foreign exchange, and trade finance.

Correspondent banks act as intermediaries, providing services to other banks in different

countries. They maintain accounts on behalf of other banks and facilitate transactions in
various currencies or regions. These relationships primarily serve the needs of the
participating banks rather than individual customers.

When it comes to checkbooks, they are typically issued by the customer's own bank, where
they hold an account. Customers can request a checkbook from their own bank, which will
be linked to their account with that specific bank. The checks issued from the checkbook can
be used for making payments to beneficiaries who accept checks as a form of payment.
If an individual or business has an account with a bank and wishes to make payments to
beneficiaries in other countries, they may have different options depending on the bank's
services. Some banks may offer international payment solutions such as wire transfers, online
payment systems, or international money orders, which can be used instead of physical
checks.

TT Remittance Through Vostro Account

This is the most widely used method for transferring funds from one country to another.
Generally, when the funds are transferred very frequently, TT remittances through Vostro
account are preferred. The steps involved in this process is outlined below: 

Step 1: AB enterprises, the remitter requests his banker, Nepal Bank Limited (NBL) to debit
his NPR account with the bank, and pay the money to XYZ Company, the beneficiary, in
India.

During the request, the remitter, AB Enterprises, furnish details of his account such as
account name, account number, branch name as well as details of the beneficiary such as
account name, account number, currency of account, etc. along with the application. 

Step 2: NBL debit’s AB Enterprises account maintained in NPR, credits the vostro account
of SBI Bank, India which account is in local currency (NPR). 

Step 3: SBI Bank, India is advised by NBL regarding transfer of funds in its account by
SWIFT, ECS, etc. along with the details of remitter and beneficiary, amount, and value date. 

Step 4: SBI Bank, India verifies the message received through NBL, debits its own mirror
account in NPR with NBL. SBI bank applies exchange rate to covert the money from NPR to
INR, and credits account maintained by XYZ company. XYZ company is informed of
inward remittance and credit to account in local currency i.e., INR. 

SBI Bank, India Verifies

AB Company’s account in credit in NPR in Its Nostro
NPR with NBL, Nepal Account, Applies
shall be debited (1) Exchange rate, converts
to INR, Credit Beneficiary
Vostro account of SBI account (3)
bank, India, in NPR with
NBL, Nepal shall be
Credited.
 XYZ’s account with SBI
Bank, India credited with
INR equivalent of NPR
remittance (4)

TT Remittance Through Nostro Account 

This method for transferring funds is chosen when the outward remittances in a currency are
infrequent. The steps involved in this process is outlined below: 

Step 1: AB enterprises, the remitter requests his banker, Nepal Bank Limited (NBL) to debit

his NPR account with the bank, and pay the money to XYZ Company, the beneficiary, in
India. During the request, the remitter, AB Enterprises, furnish details of his account such as
account name, account number, branch name as well as details of the beneficiary such as
account name, account number, currency of account, etc. along with the application. 

Step 2: NBL debits AB Enterprises account with money in NPR currency due for remittance.
NBL applies the exchange rate to convert the NPR remittance amount in INR in which its
Nostro account is maintained with SBI Bank, India payable to beneficiary XYZ company in
India. NBL credits the mirror account of SBI Bank, India in INR for accounting entry
purpose. 

step 3: NBL, the remitting bank, advises SBI Bank, India though SWIFT, TT, etc.
authorizing it to debit NBL's Nostro account with the amount in INR payable to the
beneficiary XYZ company with all details. Le. purpose of payment, value date, reference
number, etc. 

step 4: SBI Bank, India verifies the authenticity of the message received from NBL. SBI
Bank, India debits its vostro account of NBL, with itself and pays the amount to XYZ
company in local (INR) currency. 

AB Company’s account in NPR with SBI Bank, India Verifies detail and
NBL, Nepal is debited (1) debit its INR Vostro of NBL,

Credit Beneficiary account (3)

 INR mirror Account is credited,
Applies Exchange rate, converts to
INR
XYZ’s account with SBI Bank,
NBL authorize SBI to debit its INR
India credited with INR
account and to pay Beneficiary (2)
equivalent of NPR remittance (4)

Funding Nostro Accounts

Funding Nostro accounts refers to the process of depositing or transferring funds into a
bank's Nostro account. A Nostro account is a foreign currency account that a bank holds in
another bank located in a different country. It allows the bank to facilitate international
transactions and manage foreign currency positions.

The overdraft limit on a Nostro account is typically agreed upon between the account holder
and the bank providing the account services. It is based on various factors, such as the
account holder's creditworthiness, transaction volume, and relationship with the bank. The
specific terms and conditions, including the interest rates, repayment terms, and fees
associated with the overdraft facility, are usually outlined in an agreement between the
account holder and the bank. To fund a Nostro account, you typically need to follow these
steps:

Contact your bank: Get in touch with your bank's international or foreign exchange
department to inquire about the specific process for funding a Nostro account. They will
provide you with the necessary instructions and guidelines.

Provide required information: The bank will likely ask you to provide certain details, such
as the beneficiary bank's name, account number, and SWIFT code (a unique identifier for
financial institutions). Additionally, you may need to provide information about the purpose
of the transaction, the source of funds, and any relevant supporting documents.
Initiate the transfer: Depending on your bank's procedures, you can initiate the transfer
through various channels, such as online banking, in-person at a branch, or via wire transfer.
Follow the instructions provided by your bank and ensure you accurately input the
beneficiary account details.

Pay applicable fees: Banks typically charge fees for international transfers, and funding a
Nostro account may involve additional charges. Be aware of these fees and ensure you have
sufficient funds to cover them.

Monitor the transfer: After initiating the transfer, keep track of the transaction to ensure it
reaches the intended Nostro account. You can stay in touch with your bank's customer
service or international department for updates on the status of the transfer.

Maximizing exchange profit

Maximizing exchange profit refers to strategies aimed at optimizing gains when converting
one currency into another. While currency exchange rates fluctuate constantly, here are some
general tips to potentially increase your exchange profit:

Timing: Monitor exchange rate trends and aim to exchange currencies when rates are
favorable. Keep an eye on economic indicators, news events, and market conditions that may
impact exchange rates. However, note that predicting short-term fluctuations can be
challenging, and it's important to consider long-term goals as well.

Comparison shopping: Compare exchange rates offered by different providers, such as

banks, online currency exchanges, or specialized forex platforms. Look for competitive rates
and low transaction fees. Consider using reputable sources or platforms that provide
transparent and reliable pricing.

Avoid unnecessary fees: Pay attention to additional fees associated with currency exchange,
such as service charges, commissions, or hidden fees. Seek providers that offer competitive
rates with minimal fees, as excessive charges can eat into your potential profits.
Consider peer-to-peer exchanges: Explore peer-to-peer currency exchange platforms that
connect individuals looking to exchange currencies directly. These platforms may offer
competitive rates and lower fees compared to traditional exchange services.

Bulk transactions: If you have a significant amount of currency to exchange, negotiate with
your chosen provider for preferential rates. Some institutions offer better rates for larger
transactions, so it's worth exploring this option.

Hedging strategies: Advanced traders and businesses may consider hedging strategies to
mitigate exchange rate risks and potentially increase profits. Options, futures, and forward
contracts are some of the instruments used to hedge against adverse currency movements.
However, these strategies involve additional complexity and risks, so seek expert advice if
considering them.

Limit orders: If you have a target exchange rate in mind, you can place limit orders with
your chosen provider. This allows you to automatically exchange currencies once the desired
rate is reached. It helps you take advantage of favorable rates without constantly monitoring
the market.

Currency diversification: If you frequently engage in international transactions or hold

multiple currencies, diversifying your currency holdings strategically can provide
opportunities for gains when exchange rates fluctuate. However, be mindful of associated
risks and ensure a balanced approach.

Remember, currency exchange markets are volatile and subject to various factors beyond
individual control

Remittance Cash Position And Currency Position

Remittance cash position refers to the amount of cash or available funds that a remittance
service provider holds to fulfill customer remittance requests. When customers send money
through a remittance service, the service provider needs to have sufficient cash on hand or in
its bank accounts to meet those obligations. The remittance cash position is a critical aspect
of the business operations of remittance providers, as it ensures they can process and deliver
the funds to the intended recipients.
Managing the remittance cash position involves careful monitoring of incoming and outgoing
remittance transactions, tracking cash flows, and ensuring an adequate liquidity buffer to
meet customer demands. Remittance providers often maintain relationships with banks or
liquidity providers to access the necessary cash reserves and maintain a healthy cash position.

Currency position, on the other hand, refers to the composition and exposure of a financial
institution or individual to different currencies. It reflects the holdings of various currencies
in their accounts or portfolios. Currency positions are managed to take advantage of potential
gains in exchange rates or to minimize potential losses.

For example, a financial institution or trader may have a long or short currency position in
a particular currency based on their expectations of the currency's future performance. A long
position means holding more of a currency in anticipation of its appreciation, while a short
position means holding less of a currency, expecting its value to decline.

Managing currency positions involves analyzing market trends, economic indicators, and
geopolitical factors to make informed decisions about buying or selling currencies. Hedging
strategies, such as using derivatives or forward contracts, may also be employed to mitigate
potential risks associated with currency fluctuations.

Both remittance cash position and currency position management are crucial for financial
institutions and remittance service providers. Effective management of these positions
ensures smooth remittance operations, liquidity management, and potentially maximizes
profitability by optimizing currency-related gains or minimizing risks.
Unit V: Overview of International Insurance

Evolution of international insurance market:

The insurance market in Europe has a long history and was a significant hub for insurance for
many centuries. However, in recent times, the leadership in the insurance market has shifted
towards America, followed by the Asia Pacific region and Europe.

Marine insurance is the oldest type of insurance policy that exists today. It originated from
the early days of human civilization when people were engaged in cross-border trade
activities. The first formal marine insurance policy that resembles what we have today dates
back to 1350 A.D. Over time, non-marine insurance and reinsurance also emerged, and they
became a significant part of the business conducted at Lloyd's, an influential insurance
marketplace.

The growth of the London insurance market played a crucial role in standardizing insurance
policies and developing marine insurance laws through judicial precedents. In 1906, the
Marine Insurance Act was passed, which included the previous common law related to
insurance. Although the act primarily focused on marine insurance, its principles were later
applied to all types of non-life insurance.
These are some of the major milestones and events in the history of insurance. They have
shaped the insurance industry into what it is today, with continuous advancements and
changes in response to the evolving needs of individuals and businesses.

The evolution of the international insurance market has crossed centuries and has been
shaped by various factors, including advancements in trade, changes in society, and
regulatory developments.

Here is a detailed account of the evolution of the international insurance market:

Ancient Times: Insurance-like practices can be traced back to ancient civilizations.

Babylonian and Chinese traders in BCE (Before the Common Era) engaged in risk-sharing
arrangements to protect against the loss of goods during transportation.

Middle Ages: During the Middle Ages, marine insurance began to emerge in Mediterranean
trading centers (The Mediterranean is a large sea located between Southern Europe, North Africa, and Western Asia.). Merchants formed
informal mutual societies known as "bottomry" to protect against risks associated with
maritime or sea trade.

17th Century: In the late 17th century, Lloyd's of London emerged as a significant player in
marine insurance. Lloyd's Coffee House became a hub for shipowners, merchants, and
underwriters to meet and agree on insurance coverage for vessels and cargoes.

18th Century: The 18th century saw the growth of insurance markets beyond marine
insurance. Fire insurance gained prominence in response to urbanization and the increasing
risk of property fires. Insurance companies began to establish themselves in various
European cities.
19th Century: The 19th century witnessed the expansion of insurance markets globally.
Insurance companies, both life and non-life, were established in Europe and North America,
catering to a growing demand for coverage.

Post-World War II: The establishment of international organizations such as the

International Union of Marine Insurance (IUMI) in 1874 and the International Union of
Credit and Investment Insurers (Berne Union) in 1934 helped foster cooperation and
standardization in the insurance industry.

Late 19th to Early 20th Century: Reinsurance emerged as a significant development during
this period. Reinsurers began to provide coverage to primary insurance companies, spreading
risk and enabling the growth of the insurance industry.

Late 20th Century: The late 20th century saw the liberalization of insurance markets and the
expansion of multinational insurance companies. Market deregulation and advancements in
technology facilitated global operations and the offering of a wider range of insurance
products.

21st Century: The international insurance market continues to evolve in response to

globalization, technological advancements, and emerging risks. Insurtech startups have
emerged, utilizing digital platforms, artificial intelligence, and big data to enhance customer
experience and streamline operations.
Cross Border Activities Of Insurance

Cross-border activities of insurance refer to the provision of insurance services across

national borders. It involves insurance companies operating in multiple countries and
conducting insurance business outside of their home jurisdiction. This can be done through
various means, including establishing branches, subsidiaries, or engaging in cross-border
trade and cooperation.

Here's how cross-border activities of insurance can be conducted:

Establishment of Branches: Insurance companies may establish branches in foreign

countries. These branches operate as extensions of the parent company and offer insurance
products and services to customers in the host country.

Creation of Subsidiaries: Insurance companies can set up wholly-owned subsidiaries in

foreign jurisdictions. These subsidiaries operate as separate legal entities and provide
insurance coverage specific to the local market.

Cross-Border Trade: Insurance companies may engage in cross-border trade by selling

insurance policies to customers in foreign countries without establishing a physical presence.
This can be done through direct marketing, online platforms, or partnerships with local
agents or brokers.

Reinsurance: Reinsurance involves transferring a portion of the risk from one insurance
company (the ceding company) to another (the reinsurer). Reinsurers often operate
internationally, providing coverage to primary insurance companies across borders to spread
risk and ensure solvency.

International Cooperation and Alliances: Insurance companies may form alliances or enter
into cooperative agreements with insurers in foreign countries. This can involve joint
ventures, distribution partnerships, or sharing expertise and resources to expand their
presence in international markets.

The relationship between cross-border activities of insurance and the World Trade
Organization (WTO) is important. The WTO has a General Agreement on Trade in Services
(GATS) that covers financial services, including insurance. GATS aims to facilitate the
cross-border trade of services, promote transparency, and provide a framework for
negotiation and cooperation among member countries.

Insurance services are subject to the rules and regulations of each country, including
licensing requirements and consumer protection measures. WTO agreements help establish a
framework for countries to negotiate and liberalize trade in insurance services while
considering national regulatory objectives.