international banking (main topics)

8/10/2019 International Banking (MAIN TOPICS)

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Q-1 Definitions

Overbought/ Long

a position in which the demand for a an asset unreasonably pushes the price of an

original asset to levels that do not support the basics

Oversold/ Short

The condition which is opposite of overbought is called oversold and short one, and the

investor sold to a price below its true value

At par

The written value, apparently on the face of any financial instrument (share, bond, bill of

exchange etc.), and sometime it is different from its market value

Option Forward

An agreement between a buyer and seller to take the transaction on the

predetermined date in the future, at a predetermined price.

Fixed forward

Asecurityderivativecontract used to buy orsell anasset at a predetermineddelivery

price on a specific date in thefuture"

Q-3 (a)

INCORTERMS used by international trade
http://www.investorwords.com/4446/security.htmlhttp://www.investorwords.com/1421/derivative.htmlhttp://www.investorwords.com/1079/contract.htmlhttp://www.investorwords.com/4467/sell.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/1390/delivery_price.htmlhttp://www.investorwords.com/1390/delivery_price.htmlhttp://www.investorwords.com/9809/future.htmlhttp://www.investorwords.com/9809/future.htmlhttp://www.investorwords.com/1390/delivery_price.htmlhttp://www.investorwords.com/1390/delivery_price.htmlhttp://www.investorwords.com/273/asset.htmlhttp://www.investorwords.com/4467/sell.htmlhttp://www.investorwords.com/1079/contract.htmlhttp://www.investorwords.com/1421/derivative.htmlhttp://www.investorwords.com/4446/security.html


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List of Incoterms that i know is written below;

(1) CFRCost and Freight

(2) CIF

Cost, Insurance and Freight

(3) CIPCarriage and Insurance Paid to

(4) CPTCarriage Paid to

(5) DAFDelivered At Frontier

(6) DDPDelivered Duty Paid

(7) DEQDelivered Ex Quay

(8) DESDelivered Ex Ship

(9) EXWEx Works

(11) FASFree Along Ship

(12) FCAFree Carrier

(13) FOBFree on Board

Q-4 (i)

ROLES OF IMPORTERS AND EXPORTERS UNDER FOB

Duties of the exporter


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1. Supply the contracted goodsin conformity with the contract of sale and deliver the goods on

board the vessel named by the buyer at the named port of shipment

2. Bear all costs and risksof the goods until such time as they shall have effectively passed the

ships rail. In other words, once goods are placed on ships rail, title to the property passes to

the buyer and so risks too

3. Provideat his own expense the customary clean shipping documentsas proof of delivery of

goods

4 Provideexport licenseand pay export duty

5 Pay loading costs.

, now let us discuss about the duties of Importer under FOB terms. If delivery terms of

an international business is on Freight On Board (FOB) basis, the importers duties and

responsibilities are given under:

Duties of Importer

1. Reservethe necessary shippingspaceand givedue noticeof the same to the exporter;

2. Bear all costs and risksof the goods from the time when they shall have effectively passed

the ships rail

3. Pay freightcost

4. Pay unloading costs and

5. Pay the priceas provided in the contract to exporter.

Q-4 (iI)

ROLES OF IMPORTERS AND EXPORTERS UNDER CPT


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CPT Seller pays for:

1. Packing suitable for rail transport

2. Loading charges

3.

Delivery to terminal

4. Customs clearance for export

CPT Buyer pays for:

1. Terminal charges terminal arrival

2. Customs clearance for import

3. Import taxes and duties

4. Unloading at destination

Q-4 (iii)

ROLES OF IMPORTERS AND EXPORTERS UNDER CIF

Seller's Responsibilities:

1. Goods - Provide the goods, commercial invoice or electronic message, and other

documentation as required by the sales contract.

2. Licenses and Customs Formalities - Obtain at own risk and cost any export licenses and

authorizations and carry out all export formalities and procedures.

3. Carriage and Insurance - Contract for and pay costs of carriage by sea or inland

waterway and insurance for 110 percent of the value of the contract to the named port

of destination. The insurance policy must allow the buyer to make claim directly from

the insurer. Deliver the insurance document to the buyer.


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4. Delivery- Deliver the goods on board the named vessel at the named port and at the

date or within the time period stipulated in the sales contract.

5. Risk Transfer- Assume all risks of loss or damage to the goods until they have passed

over the ship's rail at the port of shipment.

Buyer's Responsibilities:

1. Payment - Pay for the goods as provided in the sales contract.

2. Licenses and Customs Formalities - Obtain and pay costs of all import licenses and

authorizations and carry out all import formalities.

3. Carriage and Insurance - No obligation to the seller to pay for carriage or insurance.

4. Taking Delivery - Take delivery of the goods at the port of destination as provided in the

sales contract.

5. Risk Transfer - Assume all risk of loss or damage from the time the goods have passed

over the ship's rail at the port of shipment.

Q-5 (1)

TERMS OF PAYMENT

Definition:

Accounting payment terms are the payment rules imposed by suppliers on their

customers. Payment terms are imposed to ensure that payments are received by

suppliers within a reasonable period of time. Discount terms may be allowed in order to

accelerate cash collections. A large customer may use its purchasing power to force a

supplier to agree to terms that are more favorable to the customer, such as a longerperiod of time in which to pay the supplier, or relaxed rules for returning goods.

Q-5 (2) short note

Types of Payments


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There are three possible components to accounting payment terms, which are:

1. Discount terms.

This is a two-part statement, where the first item is the percentage discountallowed, and the second item is the number of days within which payment can

be made in order to receive the discount. Thus, terms of "1/10" mean that a

discount of 1% can be taken if payment is made within 10 days.

2. Net terms.

"Net" means that the full amount is due for payment. Thus, terms of "net 20"

mean that full payment is due in 20 days. The term may be abbreviated to "n"

instead of "net".

3.

End of month terms.

The abbreviation "EOM" means that the payer must issue payment

within a certain number of days following the end of the month. Thus,

terms of "net 10 EOM" mean that payment must be made in full within

10 days following the end of the month.

Q-5 (a)

AIRWAYS BILL

COMPONENTS:

1.

bill of lading

2.

commercial invoice

3.

consular invoice

4.

certificate of origin

5.

NAFTA certificate


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6.

Inspection certification

7.

dock receipt and a warehouse receipt

8.

destination control statement

9.

Shipper's Export Declaration

10.

export license

11.export packing list

12.

insurance certificate

Q-5 (b) short notes

COMBINED TRANSPORT BILL OF LADING

Definition

Bill of Lading (abbreviated to B/L) is one of the MOST important documents in the wholeshipping and freight chain and although I have written several articles under the category of Bill

of Lading, I thought it would be a good idea to dedicate an (rather lengthy) entire post to this

document, so here goes.. Grab a cuppa coffee and read on..

3 basic purposes or roles:

1. Evidence of Contract of Carriage

2. Receipt of Goods

3.

Document of Title to the goods

lINER BILL OF LADING


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Definition

The bill of lading is a document issued by a carrier which acknowledges receipt of the cargo,

contains terms of carriage and may operate as a document of title. Taking each of these key

functions in turn:

Functions:

(a) Receipt: The B/L records the fact that the cargo has been loaded on the vessel and is

evidence of the facts stated in it.

(b) Contract of Carriage: It contains or evidences the contract of carriage

(c) Document of Title: if the bill is negotiable (as to which, see Types of B/Ls below), it is a

document of title which identifies who can demand the goods at the discharge port.

CHARTER PARTY OF BILL OF LADING

Charter party bill of lading is another type of bill of lading used under sea mode of transport. If

one shipper or a group of shippers arrange to charter their goods to final destination, a vessel is

chartered. This chartered vessel is meant to move the goods exclusively for such shipper or

shippers. In such cases, as a proof of receipt of goods, the charterer who charters the ship

issues a document of title which is called Charter party bill of lading.

SEA WAY BILL

Shipping companies issue sea waybills to shippers as a sort of proof or evidence that there is a

contract of carriage between the shipper in question and the shipping company. In order

words, the sea waybill is a document that serves as proof that the shipper actually received the

goods from the shipper and agreed to carry it to a stated destination.

Importants

1.

serves an alternative for a bill of lading for the purposes of shipping goods and having

someone collect the goods on arrival at the destination port.


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2. longer time to arrive because of situations such as postal delays and other unforeseen

circumstances. In this sense,

3. serves as an authorization for the goods covered by the document to be released to the

consignee named on the document. Such a precaution

4. expedite the process of offloadingthe cargo on arrival at their final destination

Q-6 (a)

RISK MINIMIZATION

UNDER:

DOCUMENTARY COLLECTION:

There are four types of processes

1. D/PDocuments against Payment

2. D/ADocuments against Acceptance

3. Clean Collection

4. Cash Against Documents

D/PDocuments against Payment

The export documents and the bill of exchange provided to a collecting bank are only made

available to an importer when payment is made. The collecting bank then transfers the funds to

the seller through the remitting bank.

D/ADocuments against Acceptance

The export documents and a time/usance bill of exchange are sent to a remitting bank. The

documents are then sent to a collecting bank with instructions to release the documents

against a buyers acceptance of the bill of exchange.


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Clean Collection

The exporter creates a bill of exchange, which is sent without any export documents to a buyer

for collection through the remitting bank to the collecting bank. There is less security for anexporter since the documents are sent directly to the importer.

Cash Against Documents

This process lacks the security and legal protection of a documentary collection since the

exports documents are sent through a remitting bank to a collection bank without a bill of

exchange. It is, however, still a collection through the banking system.

Q-6 (b)

RISK MINIMIZATION

UNDER:

DOCUMENTARY CREDIT:

Types of documentary credits

Availability

1. Sight payment credits

The applicable security criteria will differ depending on the form of the sight payment

credit.

2. Deferred payment credits

Under a deferred payment credit, the issuing bank and any confirming bank undertake

to effect payment on a specified later date subject to the presentation of the stipulated

documents on or before the expiry date of the documentary credit.


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3. Acceptance credits

Under an acceptance credit, on presentation of the stipulated documents and a draft

drawn on the issuing or the nominated bank, the exporter receives a bill of exchange

undertaking that payment will be effected on the designated due date.

4. Negotiation credits

Under a negotiation credit, the exporter receives an advance or an agreement to

advance the funds from the negotiating bank on presentation of the stipulated

documents and, where applicable, a draft.

5. Documentary credits in transit trade

A documentary credit is also an appropriate means of meeting the security

requirements of the various parties in the transit operations of the international

trade.

Q-7 short note

Uniform Customs and Practice for Documentary Credits, UCP 500

This is the 6th edition of ICC's Uniform Customs and Practice for Documentary Credits, 1993

Revision, UCP 500, which went into force on January 1, 1994. The 49 articles of UCP 500 are a

comprehensive and practical working aid to bankers, lawyers, importers, exporters, transport

executives, educators and everyone involved in letter of credit transactions worldwide. For

ease of reference, UCP 500 keeps the same framework of the past revisions of the Uniform

Customs and Practice for Documentary Credits.

UCP 500 Changes

1. Simplifies the rules

2. Ensures that they are consistent with current market practice


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3. Enhances the integrity and reliability of the documentary promise

4. Introduces the presumption of irrevocability

5. Clarifies the primary liability of the issuing bank and the confirming bank

6.

Introduces a course of action to be taken on "non-documentary conditions"

7. Clearly lists the elements of acceptability for each major type of transport document

Q-8 (a)

INTERNATIONAL SETTELEMENT THROUGH BANKS

METHODS:

The four methods of payment namely

1. Advance Payments

2.

Open Account System

3.

Consignment Sale

4. Bill for Collection

(1) ADVANCE PAYMENT

When there is a sellers market for the goods, the Exporter can demand that the

Importer should make full advance payment before the goods are despatched.

Even though this method is the most desirable for the Exporter, the Importer has to rely

on the integrity of the Exporter and his capacity to execute the order in time.

More than that, the entire transaction is financed by the Importer in this method

thereby making the transaction more costly for him; besides exposing the Importer to

credit risks.


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On account of the above factors some countries have imposed Exchange Control

restriction regarding imports.

For example in India advance payment is allowed only in respect of import of books,

periodicals, life saving payment apparatus, capital goods, machinery and a few other

items.

Bankers may stipulate that the Importers produce documentary evidence showing the

supplier demanding the advance payment. Advance payment of USD 2500/- or its

equivalent can be made for commercial imports subject to the following conditions.

(2) Open Account System

When an Exporter agrees to sell the commodity on open account system to the

Importer, he despatches the goods to the buyer directly followed by the transport

documents and an invoice requesting payment.

You may observe that the Exporter loses control over the goods completely and leaves

everything on the integrity of the buyer.

To put it in other words, the effect of this system is just opposite to advance payment

system. While open account system is most advantageous to the Importer, the Exporter

bears the entire financial and commercial risks.

This system is normally resorted to when the goods command buyers market.

The commercial risk is, to some extent minimised by taking a policy of ECGC.

To take care of the interest of the Indian Exporters, there are Exchange Control

restrictions imposed by RBI on open account export Sales.

(3) Consignment Sale

While the ownership and possession passes to the buyer in the case of open account

system, the ownership remains with the seller in the case of consignment sale.

The consignee in this case will be selling agent of the Exporter.


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The goods are sold by the consignee on behalf of the Exporter and as and when the

proceeds are received, they are remitted to the Exporter.

The agent/consignee may deduct from the sale proceeds of the goods, the expresses

normally incurred such as warehousing & handling charges, Jewellery, precious stones

and engineering goods are normally sold by this method.

In the case of goods exported on consignment basis, freight and marine insurance must

be arranged in India.

Engineering Export promotion council maintains a warehouse at Rotterdam to assist

the Exporters.

The time limit for realisation of export proceeds is 15 months as against the usual 6

months.

(4) Documentary collection

In the methods mentioned above, either the Exporter benefits or the Importer benefits.

Can there be a method where the Exporter does not lose control over the goods (title to

goods) and the Importer is called the documentary collection, using the services of the

Bank

The Exporter prepares the proper financial and commercial document including the

transport document and hands over to his Banker requesting in clear terms as to how

the documents are to be delivered to the Importer at the other end.

The uniform rules for collection (International Chamber of Commerce, Publication No.

322) with effect from January 1979 form an internationally accepted code of practice

covering documentary collection.

There are four main parties to a documentary collection.

Q-8 (b)

Let us see some advantages and disadvantages of Money transferring


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MT

1. Advantages of Money Transferring

A) Speed

Money transfer can be done instantly and processed within a 1 or 2 days helping to manage the

finances.

B) Security and Privacy

Immediate confirmation of money sent and received is made. Privacy is maintained individually.

C) Flexibility and Convenient.

Transfer of money takes only some minutes making it easier to take money and roam from one

location to another.

D) Good exchange rates.

Users can get the benefits of prevailing exchange rates of the country and also the bank.

E) Low transfer charges by the bank.

F) Past history system

You can check histories and present status of your transfers from anywhere in the world

G) Direct deposit facility

This reduces paper work of writing and issuing cheques.

H) Direct facility of debit and credit

Electronic payments reduce paper money and cheques as one can pay in shopping or bills by

plastic cards that help in money transfer. This reduces the strain to carry paper money in


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pocket. Debit card will directly take out the required money from your bank account for which

transaction has been made.

2. Disadvantages of Money transfer.

A) Compulsory transfer fees by online services

Sometimes, online services take the advantage of having their monopoly and charge some

transfer fees in return of money transfer. Since online services are fast, one is bound to give

them the fees

B) No guarantee of secured data of credit and debit card transactions.

Sometimes hackers might infiltrate by latest software into the machines of debit and credit

cards and take out important pin or passwords and use it against you.

C) Danger of hacking of bank accounts and passwords

The hackers can infiltrate into bank account softwares and websites and take your account data

and passwords and use it against you.

TT

Advantages of TT

1. Fast: The payments transferred with bank wire transfers are fast and do not require a

long period of time to be completed. For example: Western Union enables individuals to

send money through the high speed service.

2. Secure: In contrast to cheque and postal payments, bank wire transferring enables

customers to transfer money through a highly secure platform.

3. Accessible: As a traditional method of money transferring, bank wires are accessible

across the globe. The service is available at banks, call centers and many other

convenience stores worldwide.


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4. Privacy: As this money transfer is exclusively between two bank accounts, the privacy of

senders and receivers is of the utmost importance. SWIFT number codes are provided in

order to receive the payments, which add more privacy and security to this form of

money transfer.

Drawbacks of TT

1. The transfer can get lost.

2. Numbers can be transposed.

3. You can miss that day's deadline for wiring, and it won't go out until the following day.

4. The manager who needs to approve the wire could be out.

SWIFT SYSTEM

Advantages of SWIFT

SWIFT helps reduce complexity and cut costs

SWIFT connectivity provides corporates with many advantages, including improved visibility of

their cash positions, standardisation of bank-agnostic payment processes and improved STP

rates.

streamline processes and simplifies complexity in order to cut costs and increase the companys

value. Hence, SWIFT for corporates is a compelling choice as it tackles precisely these

challenges. However,

Drivers such as ISO 20022 XML messaging for cash management or eBAM are also suitable for

other means of connectivity.

Disadvantage of SWIFT

some caution is still advised. Given the investment needed to take full advantage of the

benefits that SWIFT has to offer, it continues to be a solution that is best suited for corporates

that are connecting to multiple banks.

Many benefits may be reaped through the available connectivity options in the market outside

of SWIFT, as long as the number of banking partners is very limited.


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Q-9 Detailed note

THE FUTURE OF EDI

Electronic Data Interchange (EDI)in existence for 25 yearsis the stable component of

conducting electronic commerce (EC) on the Internet. Technology has experienced tremendous

growth during this time, making EDI an essential tool for businesses in todays global

marketplace. Two significant factors contributed to this success: the Internet and

standardization.

The development of X12, the principal standard for EDI transactions today, has had a profound

impact on the growth of electronic commerce. As electronic commerce gained popularity, each

industry developed its own standards of electronic communication. However, this diversity

limited the ability to conduct electronic commerce among businesses that relied on different

protocols. Organizations using EDI solved this problem by making one common standard. X12

caused enormous expansion in the use of EDI. That expansion includes service industries such

as finance, health care, and insurance.

EDI is contributing not just to interindustry growth, but to increased trade between countries.

Until EDI became prevalent, many organizations involved in international business were not

able to electronically communicate critical business documents such as advance ship notices or

custom forms. Today these transactions take place routinely and seamlessly, helping increase

productivity while reducing costs and administrative tasks.

The future of EDI is clear. Now that electronic commerce on the Internet is predicted to grow toa multibillion dollar industry by the year 2000, EDI and the X12 standards will become the

mainstay for this growth. The emergence of X12 served to increase EDI compatibility with

Internet protocols. As a result, EDI is increasingly accessible through this network. With simply a

computer and an on-line browser, businesses can link into secure EDI networks for a minimal

investment. By engaging in EDI through the Internet, small and medium-sized firms can


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compete for business on a level playing field with large organizations; expand their market

globally; and improve relationships with their current trading partners.

The use of X12 and the Internet is eliminating the traditional barriers for entry to EDI, such aslarge cost and trading volume requirements and proprietary software. As a result, new

companies and industries are using electronic commerce to gain a competitive advantage in

todays marketplace.

Q-10 Detailed note

Factors Influence Forward Exchange Rates and Spot Rates

There are some factors that can have great influence on spot and forward exchange rates in the

forex market. here are some major ones.

(1) economic health of a country is likely to influence the value of its currency, which will in

turn influence the exchange rate.

(2) political and military turmoil may change the exchange rates greatly. Thirdly, government

intervention can adjust the exchange rates.

(3 ) speculation plays an imporant role in the forex market and can greatly influence the

exchage rates.

(4) supply and demand of the currencies. Supply and demand of the currencies are influenced

by several economical factors, foreign trade, political stability, domestic debt levels, monetary

policy, central bank and the activities of international investors.

(5) Capital flows, given their size and mobility are of great importance in determining exchange

rates.

(6)Your countries trade in goods and services also impact the currency rate thus investors keep

an eye on the trade flow of both the countries whose currencies are being traded.