IB0018 - Export-Import Finance

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ASSIGNMENT

DRIVE FALL	2013
PROGRAM	MBADS – (SEM 3/SEM 5) / MBAFLEX / MBAN2 – (SEM 3)
SUBJECT CODE & NAME	IB0018 - Export-Import Finance
SEMESTER	3
BK ID	B1618
CREDITS	4
MARKS	60

Note: Answer all questions. Kindly note that answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme.

Q.1 Explain the risk involved in Documentary Bills in case of export. What is Bill of Exchange and name the parties involved in a bill of exchange.

Ans : Risks in documentary credit :

A documentary credit—also called a letter of credit—is a conditional guarantee of payment in which an overseas bank takes responsibility for paying you after you ship your goods, provided you present all the required documents.

1. Country Risk: (Political Risk)

Q.2 Discuss the various UCP 600 provisions relating to standard for examination of documents under credit.

Ans :  UCP was first introduced to remove the different applications by individual countries and to avoid endorsing national rules on letter of credit practice. The first set of rules was published in 1933 which has been updated throughout the years, UCP 600 being the most up to date version. It should be noted that the previous version, which is UCP 500 is still often encountered in practice as it is the parties' choice to choose which set of rules governs the credit transaction.

Q.3 Distinguish between pre-shipment finance and post shipment finance. Discuss the RBI guidelines regarding post shipment finance.

Ans:  Difference between pre-shipment finance and post shipment finance:

Pre Shipment Finance is issued by a financial institution when the seller want the payment of the goods before shipment. The main objectives behind pre shipment finance or pre export finance is to enable exporter to:

• Procure raw materials.
• Carry out manufacturing process.
• Provide a secure warehouse for goods and raw materials.
• Process and pack the goods.

Types of Pre Shipment Finance:

Q. 4 Write short notes on:

a) letter of credit

b)Import financing

Ans : a) Letter of credit :

A letter of credit is a document issued by a financial institution, or a similar party, assuring payment to a seller of goods and/or services provided certain documents have been presented to the bank. These are documents that prove that the seller has performed the duties under an underlying contract (e.g., sale of goods contract) and the goods (or

b) Import financing :

Ans :  The delays and complications associated with trading overseas can be a great burden on an importer’s cash flow. Import finance specialises in overcoming these challenges, leaving working capital free to invest into growing the business.

Import Finance will help you to close the funding gap between an order from a UK customer placed on credit terms, and the payment demanded by your overseas supplier.

Using an import finance facility will ease the pressure on cash flow and can take care of some of the complex paperwork and procedures that come with it.

Import Finance working :

Q.5 Explain the meaning of ECB. Discuss the RBI guidelines, for ECB under Automatic Route, relating to amount and maturity.

Ans : Meaning of ECB :

An external commercial borrowing (ECB) is an instrument used in India to facilitate the access to foreign money by Indian corporations and PSUs (public sector undertakings). ECBs include commercial bank loans, buyers' credit, suppliers' credit, securitised instruments such as floating rate notes and fixed rate bonds etc., credit from official export credit agencies and commercial borrowings from the private sector window of multilateral financial Institutions such as International Finance Corporation (Washington), ADB, AFIC, CDC, etc. ECBs cannot be used for investment in stock market or speculation in real estate. The DEA (Department of Economic Affairs), Ministry of Finance, Government of India along with Reserve Bank

Q.6 What is ECGC? Explain Commercial and Political Risks covered under ECGC Policies.

Ans : ECGC :

The Export Credit Guarantee Corporation of India Limited (ECGC) is a company wholly owned by the Government of India based in Mumbai, Maharashtra.[1] It provides export credit insurance support to Indian exporters and is controlled by the Ministry of Commerce. Government of India had initially set up Export Risks Insurance Corporation (ERIC) in July 1957. It was transformed into Export Credit and Guarantee Corporation Limited (ECGC) in 1964 and to Export Credit Guarantee Corporation of India in 1983.

Working of ECGC :

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