Q1 :- 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?
A1:-
The Risk Involved In Documentary Bills Credit In Case Of Export
There are two types of documentary Bills-
1. Documents against payment (D/P)
2. Documents against acceptance (D/A).
Risks In Documents Against Payment :-
 If buyer is unable to pay the amount he will suffer loss.
 Finding a new buyer is difficult & then seller has to sell at very low price.
 If the products are perishable it will be spoiled as there is an expiry issues.
 If seller has to take the goods back he will have to pay all the charges on
freight,insurance,clearing & forwarding.

Risks In Documents Against Acceptance :-
 Goods are delivered before making payment.
 Buyer may not pay on the promised time.
 If buyer is dishonest or bankrupt he can give excuses.
 He finds that the goods are not what he ordered.
Meaning Of Bills Of Exchange
A three-party negotiable instrument in which the first party, the drawer, presents an order for the
payment of a sum certain on a second party, the drawee, for payment to a third party, the payee, on
demand or at a fixed future date.
A written, unconditional order by one party (the drawer) to another (the drawee) to pay a certain sum,
either immediately (a sight bill) or on a fixed date (a term bill), for payment of goods and/or services
received. The drawee accepts the bill by signing it, thus converting it into a post-dated check and a
binding contract.
A bill of exchange is also called a draft.
The Parties to a Bill of Exchange:
 The Drawer - Is the party that issues a Bill of Exchange in an international trade transaction;
usually the seller.
 The Drawee - Is the recipient of the Bill of Exchange for payment or acceptance in an
international trade transaction; usually the buyer.
 The Payee - Is the party to whom the Bill is payable; usually the seller or their bankers.

Q2:- Discuss the various UCP 600 provisions relating to standard for examination of documents under
credit?
A2:-
Documents are explained under articles 17 to 28
Article 17
At least one original of each document required in the credit must be presented. In case credit requires
multiple copies; at least one should be original.
Article 18
A commercial invoice must be made out in the currency of the credit, name of the applicant and should
be issued by the beneficiary. The description of goods in invoice must correspond with that of the credit.
The amount may exceed the amount of credit within the permitted limit of the credit. It need not be
signed.
Article 19
A multi-modal or combined transport document must indicate the name of the carrier; place of
dispatch, taken in charge or shipped on board, the date of issue and place of destination. It should
contain terms and conditions of carriage, number of originals issued. It should not be Charter Party
document. It should be signed by the carrier or master or his agent. A transport document indicating
that transshipment will or may take place is acceptable even if the credit prohibits transshipment.
Article 20
A bill of lading must indicate name of the carrier, shipped on board a named vessel, port of loading, date
of shipment and port of discharge. It should contain the terms and conditions of carriage, number of
originals issued. It should contain no indication that it is subject to a charter party. In case goods are
shipped in a container, trailer or LASH barge, a bill of lading indicating transshipment is acceptable. It
must be signed by the carrier, master or his agent.
Article 21
A non-negotiable Sea Way Bill should comply the same requirements as in the case of Bill of Lading
under Article 21.
Article 22
A Charter Party Bill of Lading must indicate that it is subject to Charter Party and must be signed by the
master/owner/charterer or his agent. It must also indicate that goods have been shipped on board a
named vessel, date of issue, port of loading, port of discharge, number of originals issued. A bank is not
required to examine a charter party contracts even if they are presented.
Article 23
An air transport document must indicate name of carrier and must be signed by the carrier or his agent.
It must also indicate date of issuance, airport of departure and airport of destination. It must be the
original for consignor or shipper. It must be signed by the carrier or his agent.
Article 24
A Road, Rail or Inland Waterway transport document must indicate name of the carrier and be signed by
carrier or his agent. It must also indicate the date of shipment, place of shipment and the place of
destination. A road transport document marked “duplicate” is considered as an original.
Article 25
Courier Receipt, Post Receipt or Certificate of Posting must indicate the name of courier service, a date
of pick up or of receipt, courier charges are to be paid or pre-paid. A Post receipt or certificate of posting
must indicate receipt of goods for transport, date and place.
Article 26
A transport document must not indicate that the goods are or will be loaded on deck. A transport
document bearing a clause such as “shipper’s load and count” and “said by shipper to contain” is
acceptable.
Article 27
A transport document not bearing a clause or notation regarding defective condition of goods or their
packaging is considered a clean transport document. A bank will only accept a clean transport
document. The word clean need not appear on the transport document.
Article 28
An insurance document such as insurance policy, an insurance certificate or a declaration under an open
cover must be issued and signed by insurance company / an underwater or their agents or proxies.
Cover notes are not considered insurance documents. All copies of the insurance documents must be
presented. It will not be dated later than the date of shipment. It must indicate the amount and the
currency should be the currency of the credit. In case the credit does not indicate the amount of
insurance, the insurance must be at least for 110% of the CIF or CIP value of goods. It must cover the
risks as stipulated in the credit.
Article 29
In case the expiry date of a credit or the last day for presentation falls on a day when the bank is closed
for reasons other than force majeure, the expiry date will be the following banking day. The last date of
shipment shall however not be extended.






Q3:- Distinguish between pre-shipment finance and post shipment finance. Discuss the RBI guidelines
regarding post shipment finance?
A3:-
DIFFERENCE
SR.NO HEADS PRE-SHIPMENT FINACE POST SHIPMENT FINANCE

1.

MAJOR
DIFFERNCE
Finance is made available before the
shipment of the goods.
Finance is made available after the shipment of
goods.
2. CLIENTAGE This is available for Indians sellers &
exporters.
This is available for clients & overseas clients
also which is importers & exporters.
3. SHORT/LONG
TERM
It is a short term finance. It can be short term or long term as per nature.
4. USAGE It is a presales or inventory finance. It is a sales finance.
5.

BASE OF FUNDS It can be fund based or non-fund based. It is fund-based mostly.
6. VALIDITY It Is available at concessive rates upto
270 days.
It is available at concessive rates of interest at
post shipment stage for max period of 180 days.

RBI GUIDELINES REGARDING POST SHIPMENT FINANCE
1. Use of Finance
Post-shipment finance is used as export sales finance & is meant for financing export sales receivables
after the date of shipment of goods to the date of realization of the export proceeds.

2. Foundation of Post-Shipment Finance
Post-shipment finance is given against the evidence of shipment of export goods or supplies made to the
designated agencies (in the case of deemed exports).

3. Persons Allowed for Post-Shipment Finance
In case of physical exports - Post-shipment finance is extended to the actual exporter who has exported
the goods or to an exporter in whose name the export documents are transferred.
In case of deemed exports - Finance is extended to the suppliers of goods who supply goods to the
designated agencies.

4. Form of Finance
Post shipment finance can be secured or unsecured. Since the finance is extended against evidence of
export shipments and the banks obtain the documents of title of goods, the finance is normally self-
liquidating finance. In a few cases like advances against undrawn balances etc. it is unsecured in nature.

5. Period of Finance
Post-shipment finance, though it is working capital finance, can be a short-term finance or a long-term
finance depending upon the payment terms. In the case of cash exports, maximum period allowed for
realization of export proceeds is 6 months from the date of shipment.



Q4:-Write short notes on:
a) letter of credit
b)Import financing

A4:-
MEANING OF LETTER OF CREDIT
A written commitment to pay, by a buyer's or importer's bank (called the issuing bank) to the seller's or
exporter's bank (called the accepting bank, negotiating bank, or paying bank).
A letter of credit guarantees payment of a specified sum in a specified currency, provided the seller
meets precisely-defined conditions and submits the prescribed documents within a fixed timeframe.
These documents almost always include
 Clean bill of lading or air waybill
 Commercial invoice
 Insurance
 Certificate of origin
To establish a letter of credit in favor of the seller or exporter (called the beneficiary) the buyer (called
the applicant or account party) either pays the specified sum (plus service charges) up front to the
issuing bank, or negotiates credit.
L/C is of 2 types:-
 Revocable-credit letter of credit
 Irrevocable-credit letter of credit

ROLE OF L/C
1.Letters of credit are essential for international trade since they ensure that payment will be received.
2. Letters of credit allows the seller to reduce the risk of non-payment by replacing the risk of the buyer
with that of the banks.
3. Letters of credit make it possible to do business worldwide.
4. A letter of credit is an undertaking by a bank to make a payment to a named Beneficiary within a
specified time, against the presentation of documents which is strictly in submission with the terms of
the letter of credit.


MEANING OF IMPORT FINANCING
Loan given to the buyer or importer to provide fluidity for buying with sight payment to the exporter or
seller. Each loan must be linked to one specific import transaction and the term of the financing can vary
depending on the type of products imported and the requirements of the importer.
Banks normally do not agree to give import credit unless the importer has proven track record and is
credit worthy. Banks take into account the norms for holding imported inventory, do appraisal of
application, prescribe margin requirements and seek security before opening an import L/C.
Import finance under L/C is most commonly used method by Indian importers. Under this arrangement,
the importer’s bank agrees to undertake the payment to the seller (beneficiary). The advising of L/C is
done through another bank termed as advising bank, generally in seller’s country.

METHODS OF IMPORT FINANCING
The bank normally follows the following steps while opening the L/C:
a. Fix credit limit
b. Fix the Margin
c. Obtain Exchange Control Copy of import authorisation for endorsement or obtain undertaking about
the import under ‘freely importable category’
d. Obtain the underlying sale contract
The Exchange Control Copy of Import Authorization is returned to the importer after necessary
endorsement.
Q5:-Explain the meaning of ECB. Discuss the RBI guidelines, for ECB under Automatic Route, relating to
amount and maturity?
A5:-
MEANING OF ECB
External commercial borrowing also known as Overseas Corporate borrowings is an additional source of
funds to Indian Corporates as well as Public Sector Undertakings. This is specifically for expansion of
existing capacity and also to expand the resources available domestically. In India, the ECB are permitted
by the Govt of India and further the access of Indian firms to foreign capital markets are monitored and
regulated by the Ministry of Finance and the Reserve Bank. The ECB can be used for any purpose
OTHERTHAN for investment in the stock market and real estate sector.
External Commercial Borrowings (ECBS) are defined to include:-

 Commercial bank loans,
 Buyers credit & suppliers credit,
 Securitized instruments such as floating rate notes and fixed rate bonds,
 Credit from official export & credit agencies ,
 Commercial borrowing from the private sector windowof Multilateral Financial Institutions such
as International Finance Corporation (Washington), ADB, IFC,CDC.

The RBI guidelines, for ECB under Automatic Route, relating to amount and maturity
Automatic Route – Amount and Maturity
I. The maximum amount of ECB which can be raised by a corporate other than those in the hotel,
hospital and software sectors is USD 500 million or its equivalent during a financial year.
II. Corporates in the services sector viz. hotels, hospitals and software sector are allowed to avail of
ECB up to USD 100 million or its equivalent in a financial year for meeting foreign currency and /
or Rupee capital expenditure for permissible end-uses. The proceeds of the ECBs should not be
used for acquisition of land.
III. NGOs engaged in micro finance activities can raise ECB up to USD 5 million or its equivalent
during a financial year. Designated AD bank has to ensure that at the time of drawdown the
forex exposure of the borrower is fully hedged.
IV. ECB up to USD 20 million or its equivalent in a financial year with minimum average maturity of
three years.
V. ECB above USD 20 million or its equivalent and up to USD 500 million or or its equivalent with a
minimum average maturity of five years.
VI. ECB up to USD 20 million or its equivalent can have call/put option provided the minimum
average maturity of three years is complied with before exercising call/put option.




Q6:- What is ECGC? Explain Commercial and Political Risks covered under ECGC Policies?
A6:-
MEANING OF ECGC
It is a company wholly owned by the Government of India. 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 of India in 1983.
ECGC is under the administrative control of Ministry of Commerce and is managed by a Board of
Directors consisting of representatives from government, banking, insurance, trade and industry.
Its Role is:-
 Offers insurance protection to exporters against payment risks.
 Provides guidance in export-related activities.
 Makes available information on different countries with its own credit ratings.
 Makes it easy to obtain export finance from banks/financial institutions.
 Assists exporters in recovering bad debts.
 Provides information on credit-worthiness of overseas buyers.

COMMERCIAL & POLITICAL RISKS COVERED UNDER ECGC POLICY
Commercial Risks
• Insolvency of the buyer.
• Failure of the buyer to make the payment due within a specified period, normally 4 months from the
due date.
• Buyers failure to accept the goods, subject to certain conditions.

Political Risks

• Imposition of restrictions by the Government of the buyers country or any government action which
may block or delay the transfer of payment made by the buyer.
• War, civil war, revolution, civil disturbances in the buyers’ country.
• New import restrictions or cancellation of a valid import license.
• Interruption or diversion of voyage outside India resulting in payment of additional freight or
insurance charges which cannot be recovered from the buyer.
• Any other cause of loss occurring outside India, not normally insured by general insurers, and beyond
the control of both the exporter and the buyer.