International Trade & Foreign Exchange

1. What are the various methods of payments that are used to settle payments
arising from international trade? Briefly describe them.
2. What is authorized dealer? What are the roles/ functions of authorized dealers?
3. What are the sources from which foreign exchange is supplied in the black
market (hundi) and the purposes for which it is used? How this market is used
for money laundering?
4. What do you mean by forward exchange?
5. Distinguish between Fixed Exchange Rates and Floating Exchange Rates
6. Distinguish between Spot Rate and Forward Rate
7. Distinguish between Direct and Indirect Exchange Rate
8. Distinguish between Revaluation and Devaluation
9. Discuss the factors affecting the exchange rate of a currency under a floating
exchange rate system.
10. What are the factors responsible for appreciation or depreciation of a currency?
Or, Factors that effected to appreciation or depreciation of a currency
11. What are the factors that contributed to depreciation of Bangladesh Taka
recently?
Or, Factor considered to depreciation of Bangladeshi Currency
12. What are the causes of changes in the exchange rates of currencies?
13. Discuss the kind of exchange rate system that operates in respect of
Bangladesh taka.
Or, Types of Exchange rate systems that operates in respect of Bangladesh
14. What does exchange control means?
Or, What is Exchange Control
15. What are the main features of exchange control in Bangladesh?
16. How does the central bank maintain controls over foreign exchange
transactions in Bangladesh?
Or, Explain about Foreign exchange restrictions and foreign exchange controls
17. Suggest the changes that can be made in the exchange control regulations to
create a conductive and market friendly business environment
18. Major Factors that Affect the Foreign Exchange Market in Bangladesh
19. What are the various types of letter of credit? What are the parties involved in a
letter of credit?
20. Describe the purposes and the types of pre-shipment export credit.
21. Describe the different types of export credits.
Or, Describe the purposes and the types pre-shipment and Post-shipment
export credit.
22. Distinguish between LIM & LTR
23. Discuss the various types of credit facilities offered to importers by the banks
24. Discuss the various types of post-shipment import finance provided by the
banks
25. Identify the possible risk associated with import finance and the steps that can
be taken to minimize these risks
26. Identify the risk associated with loans granted to the importers against Trust
Receipt and how these risks can be mitigated

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27. Briefly discuss the advantages and disadvantages of financing imports under
LTR
28. Define Documentary Credit. What are the advantages of a Documentary Credit?
29. Distinguish between documentary credit and documentary collection
30. Describe briefly the types of frauds that occur in connection with documentary
credit.
31. Discuss the features of Documentary Credit/ Letter of Credit
32. Discuss the duty and responsibility of Opening Bank/ Issuing Bank under
confirmed L/C
33. Discuss the duty and responsibility of Advising Bank/ Corresponding Bank
34. What is meant by balance of payments?
35. Describe the factors responsible for adverse balance of payments.
36. What corrective steps a developing country like Bangladesh can take to correct
an adverse balance of payments?
37. How does Balance of Trade differ from Balance of Payments?
Or, Difference between Balance of Trade and Balance of Payments
38. What are the principal incentives offered for foreign investment in Bangladesh?
39. Analyze the favorable and adverse impacts of foreign investment on Bangladesh
economy.
40. What are the measures you would suggest to improve the climate for foreign
investment in Bangladesh.
41. What do you mean by Flight of Capital? Describe why & how capital flight from
Bangladesh? What preventive steps you would suggest to stop capital flight?
42. Describe the various methods available to overseas Bangladesh Nationals for
transfer of funds to the home country. What are the problems normally
encountered by them for such transfer?
43. Discuss the trends and main sources of foreign exchange remittances
44. Analyze the importance/ impact of remittance in the Bangladesh economy
45. What are your suggestions for improvement of the banking channel for
remittances to Bangladesh at low cost and greater speed?
46. What is the Functions of World Bank?
47. Discuss the objectives and roles of the world bank to promote economic
development of its member countries
48. Role of World Bank in the economic development in Bangladesh
Or, Give a brief account of its assistance to Bangladesh for development of
various sectors of the economy

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1. What are the various methods of payments that are used to settle
payments arising from international trade? Briefly describe them.
There are different methods which are adopted to make international payment,
through the banking system. Following are the main methods:
1. Letter of Credit: It is a document issued by the importers bank to exporter
authorizing him to draw drafts on the bank payable on demand on the specified
terms and conditions.
2. Mail Transfer (MT): The payment can be also made in other country by mail
transfer. Here the selling office of the bank sends written instructions by mail to
the paying bank for the payment.
3. Telegraphic Transfer (TT): Telegraphic transfer is an order by telegram to a
bank to pay a specified sum of money to the specified person.
4. Foreign Bank Draft: It is an order drawn by a bank on its foreign branch or
correspondent to pay specific sum of money on demand to bearer or to the
person.
5. Money Order: The payment can be made to a person who is living in other
country through money order.
6. Travelers Cheque: It is an order drawn by a bank upon itself to pay on demand
the purchaser of the cheques. The paying bank after comparing the signatures
of purchase, which he has signed at the time of the purchasing of cheques and
makes the payment.
7. Travelers L/C: It is used to finance foreign travel is addressed to banks in
foreign countries authorizing the person to whom it is issued to draw drafts on
the issuer.
8. Open Account: The goods are sold on our open account. If an exporter has full
confidence on the importer he can sell the goods in another country on our
open account without getting any surety for the third party.
9. Foreign Exchange Dealers: In every country foreign exchange dealers purchase
and sell the foreign currency and pay in the home currency for meeting their
local money demands and sell it to the persons visiting foreign countries.
10. Bill of Exchange: It is a main and most effective method of transferring
payments that a written order addressed by one person to another. The
creditor orders to the debtor to pay a particular amount to the payee.

2. What is authorized dealer? What are the roles/ functions of

authorized dealers?
Authorized Dealers:
As per section 2 of Foreign Exchange Regulation act 1947, Authorized Dealer means
a person, for the time being authorized to deal in Foreign Exchange. In other words
Authorized Dealer means a Bank, authorized by Central Bank to deal in foreign
exchange. There are some persons or firms, authorized by Central Bank to deal in
foreign exchange with limited scope, are called Authorized Money Changers.

Functions of Authorised Dealer

Authorised Dealer can handle all kinds of Foreign Exchange transaction as per
FER Act 1947 under the instruction of Bangladesh Bank. Following are the
main function of an Authorised Dealer.

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 1. Exchange of Foreign Currencies.
2. To make arrangement with Foreign Correspondent.
3. Buying & Selling Foreign Currencies
4. Handling of Inward & Outward Remittance
5. Opening of L/C & Settlement of Payment.
6. Investment in Foreign Trade.
7. Opening & Maintenance of Accounts with Foreign Banks 'under intimation to
Bangladesh Bank.
8. Export documents handling

3. What are the sources from which foreign exchange is supplied in the
black market (hundi) and the purposes for which it is used? How this
market is used for money laundering?
Hundi or money carrier system is prevalent as informal procedure of remittance
sending in most of the cases. Hundi refers to the illegal money exchange not
supported by the international or national legal structure. The exchange rate
offered by the hundi operators is 1-2% higher than the official exchange rate. They
do not charge anything for transaction. It is the fastest method of transaction. In
urgent situations this is the quickest method for sending money. The hundi
operators provide door to door services. It was interesting to note that there are
other social reasons for sending remittance through hundi. Few mentioned they
send money to wives, fathers or brothers separately and preferred to keep the
amounts sent secret, as it creates tension among the family members. Hundi
provides the opportunity to maintain such confidentiality.

A number of reasons have been attached to the growth of Hundi market. These
include:
1. Financing smuggling of various items, including gold;
2. Existing tax regime leading to under- invoicing of imports;
3. Unholy alliance between officials of financial institutions and hundi elements;
4. Financing recruitment charges of the recruiters;
5. Difference between official and unofficial exchange rates;
6. Quality and speed of service;
7. Ability to reach clients both in destination countries and in the source countries.

4. What do you mean by forward exchange?

A Forward Exchange Contract is an agreement between two financial institutions, in
which they agrees to buy or sell foreign currency on a fixed future date, or during a
period expiring on a fixed future date, at a fixed rate of exchange. The forward
exchange contracts, both buying and selling, may be either fixed or optional term
contracts. The party agreeing to buy the underlying asset in the future assumes a
long position, and the party agreeing to sell the asset in the future assumes a short
position. Forward Exchange Contracts can be used to cover the exchange risk
between two country’s currencies.

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5. Distinguish between Fixed Exchange Rates and Floating Exchange
Rates
[2 Answer]
A fixed exchange rate is a rate the government sets and maintains as the official
exchange rate. A set price will be determined against a major world currency. In
order to maintain the local exchange rate, the central bank buys and sells its own
currency on the foreign exchange market in return for the currency to which it is
pegged.
A floating exchange rate is determined by the private market through supply and
demand. It is often termed "self-correcting," as any differences in supply and
demand will automatically be corrected in the market. As see, if demand for a
currency is low, its value will decrease, thus making imported goods more
expensive and stimulating demand for local goods and services.

Sl. Fixed exchange rate Floating exchange rate

A nominal exchange rate that is set Determined by the private market
1 firmly by the local monetary authority through supply and demand as self-
corrected
Imposed by a local official exchange Imposed by rate of foreign exchange
2
rate system markets
3 Rate is stable in general Rate fluctuates constantly
The main economic advantage is that The economic main advantage is that
4 they promote international trade and they leave the monetary and fiscal
investment authorities free to pursue internal goals
The main disadvantage is that it The main disadvantage is encourage
discourage to international trade and more to international trade and
5
investment due to nominal exchange investment due to autonomous
rate system monetary system

6. Distinguish between Spot Rate and Forward Rate

Spot exchange rates are the rates that are applicable for purchase and sale of
foreign exchange on spot delivery basis or immediate delivery basis. The term spot
denotes immediate happening and closing of transaction, practically it takes two
business days for a spot exchange transaction to get settled.
Forward exchange rates, in contrast, are the rates that are applicable for the
delivery of foreign exchange at a certain specified future date. For example, a
foreign exchange contract may specify that the payment has to be settled after 3
months, or it may be a 90-day maturity contract.

7. Distinguish between Direct and Indirect Exchange Rate

A direct quote is an exchange rate expressed in terms of the number of units of
domestic currency corresponding to one unit of the foreign currency. In other
words, it involves quoting in fixed units of foreign currency against variable
amounts of the domestic currency.
An indirect quote is the expression of an exchange rate in terms of the number of
units of a foreign currency corresponding to a single unit of the domestic currency.

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In an indirect quote, the foreign currency is a variable amount and the domestic
currency is fixed at one unit.

8. Distinguish between Revaluation and Devaluation

Revaluation means a change of a price of goods or products. This term is specially
used as revaluation of a currency, where it means a rise of currency to the relation
with a foreign currency in a fixed exchange rate. In floating exchange rate correct
term would be appreciation.
Devaluation in modern monetary policy is a reduction in the value of a currency
with respect to those goods, services or other monetary units with which that
currency can be exchanged. It means official lowering of the value of a currency
within a fixed exchange rate system, by which the monetary authority formally sets
a new fixed rate with respect to a foreign currency.

9. Discuss the factors affecting the exchange rate of a currency under a

floating exchange rate system.
The exchange rate of a currency under a floating exchange is determined by market
forces such as supply and demand. These factors are:
1. Currency appreciation & depreciation: Currencies in a floating exchange
system can either appreciate or depreciate. Appreciation is when a floating
exchange system increases in value in terms of another currency. Depreciation is
when a currency decreases in value in terms of another currency.
2. Flow of funds: When there is an imbalance in balance of payments, there will
either be an inflow of funds as foreign investment and an outflow of funds as
invest to foreign countries.
3. Interest rate over inflation: Due to the higher or lower interest rate over
inflation, the investors will tend to chose or not chose to invest in the country
with the higher or lower differential of interest rate over inflation respectively.
4. Trade balance: There will be higher demand for the currency that export much
more than the import and lower demand for currency that import much more
than the export, because of the imbalance.
5. Investor’s confidence: Investors are dependent to the country's economic
strengths that they will be more likely to buy that country's assets, pushing up
the value of country's currency.
6. Speculation: When people expect appreciation or depreciation, the demand of
the currency will increase or decrease respectively.

10. What are the factors responsible for appreciation or depreciation of a

currency?
Or, Factors that effected to appreciation or depreciation of a currency
1. Relative Product Prices: If a country's goods are relatively cheap, foreigners
will want to buy those goods. In order to buy those goods, they will need to buy the
nation's currency.
2. Supply and Demand: The principles of supply and demand apply to the
appreciation and depreciation of currency values. If a country injects new currency
into its economy, it increases the money supply.

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3. Inflation and Deflation: Inflation occurs when the general prices of goods and
services that are causes of the value of the currency to depreciate, reducing
purchasing power. Simultaneously, deflation acts reversely.
4. Monetary Policy: A country with easy monetary policy will be increasing the
supply of their currency, which will cause the currency to depreciate. This country
with restrictive monetary policy will be decreasing the supply and the currency
should appreciate.
5. Economic Outlook: The negative impacts on major economic indicators like
retail sales, GDP and a high/ rising unemployment rate can also depreciate currency
value. If the economy is in a strong growth period, the currency value will
appreciates.
6. Trade Deficits: When the trade deficit of a country increases, the value of the
domestic currency depreciates. Simultaneously, when it decreases, the value of its
domestic currency appreciates.

11. What are the factors that contributed to depreciation of Bangladesh

Taka recently?
Or, Factor considered to depreciation of Bangladeshi Currency
The factors affecting behind the currency depreciation of Bangladeshi taka recently
are mentioned below:
1. High Inflation: The main cause of high inflation in Bangladesh is oil and food
price hike in abroad. The high level of inflation in the economy leads to lower the
value of local currency taka.
2. Low Foreign Direct Investment: The growth rate of foreign direct
investment is showing a declining trend. In the recent past, the FDI growth rate is
severely low.
3. Trade Deficit: For the inception of floating exchange rate regime, the export
volume has increasing trends; as the huge amount of trade deficit with an
increasing trend.
4. Pressure on international reserves: Growth in exports thus far has not
matched rising import bills and slow remittance. Hence there has been a continuous
pressure on the international reserves of the country.
5. Demand-Supply mismatch: It has been created in the foreign exchange
market, leading the continuous depreciation that has been observing for the last
year or so.

12. What are the causes of changes in the exchange rates of currencies?
The factors can change the exchange rate of a currency are as follows:
1. Differentials in Inflation: As a general rule, a country with a consistently
lower inflation rate exhibits a rising currency value, as its purchasing power
increases relative to other currencies.
2. Differentials in Interest Rates: A higher or lower interest rate offer lenders in
an economy a higher or lower return relative to other countries respectively. It
results cause the exchange rate.
3. Current-Account Deficits: A current account deficit shows the country is
spending more on foreign trade than it is earning, and it is borrowing capital from

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foreign sources to make up the deficit. The excess demand of foreign currency
lowers the exchange rate and also it may occur oppositely.
4. Public Debt: A large public debt encourages inflation, and if inflation is high,
the debt will be serviced and ultimately paid off with cheaper currency in the future.
Thus, it will determine the currency rate.
5. Trade imbalances: The size of any trade deficit between two countries will also
affect those countries' currency exchange rates. This is because they result in an
imbalance of currency reserves among the trading partners.
6. Political Stability and Economic Performance: Foreign investors inevitably
seek out stable countries with strong economic performance in which to invest.
Political turmoil, for example, can cause a loss of confidence in a currency and a
movement of capital to the currencies of more stable countries.
7. Government intervention: The currency exchange rate may be imposed by its
government, i.e. wealth of the citizens, domestic production, country’s labor cost.
Also it may depend on altering the monetary and fiscal policies, and by directly
intervening in the currency markets and so on.
8. Speculators: It is typically have tremendous amounts of capital that they can
use to either buy or sell any currency as cause the currency value will fluctuate.

13. Discuss the kind of exchange rate system that operates in respect of
Bangladesh taka.
Or, Types of Exchange rate systems that operates in respect of
Bangladesh
The exchange rate management is one of the central issues of macroeconomic
policies of Bangladesh.
There are four types of exchange rate system. These are fixed, freely floating,
managed float and pegged types. Historically, Bangladesh had been maintaining
various pegged exchange rate regimes or fixed exchange rate regimes.
1. Fixed exchange rate system
2. Floating exchange rate system
On May 31, 2003, Bangladesh switched to floating exchange rate system by
abandoning the adjustable pegged system in order to discover the actual value of
foreign currencies.
There are two type of floating exchange rate system like-
a. Freely floating exchange rate system
b. Managed float exchange rate system
3. Pegged exchange rate system
Bangladesh had been maintaining various pegged exchange rate regimes, such as
pegged to the British pound sterling (1972-1979), pegged to a basket of major
trading partners' currencies with pound sterling as the intervening currency (1980-
1982), pegged to a basket of major trading partners' currencies with US dollar as
the intervening currency (1983-1999), and an adjustable pegged system (2000-
2003).

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14. What does exchange control means?
Or, What is Exchange Control
Foreign exchange controls are various forms of controls imposed by a government
on the purchase/sale of foreign currencies by residents or on the purchase/sale of
local currency by nonresidents. Some common foreign exchange controls include:
- Banning the use of foreign currency within the country
- Banning locals from possessing foreign currency
- Restricting currency exchange to government-approved exchangers
- Fixed exchange rates
- Restrictions on the amount of currency that may be imported or exported

15. What are the main features of exchange control in Bangladesh?

The main features of exchange control include:
1. Convertibility of Bangladesh Taka: The Taka is fully convertible for current
account transactions. All current transactions may be conducted by individuals/
firms without prior permission of Bangladesh Bank.
2. Opening of Bank Account by a Foreign Investor: A non-resident can open
a NITA, FC and NFCD Account with any AD in Bangladesh from abroad to fund
transfer.
3. Bringing in Cash from Abroad by a Foreign Investor: A foreigner can bring
exchange in any form. A declaration is required at entry time when it excess
$5000.
4. Transfer of Capital and Capital Gains: The repatriation of sale proceeds of
shares may be made through an AD if such investment takes place through
NITA operation.
5. Transfer of profit and dividend accruing to a foreign investor: Post tax
profit of branches and dividends of companies can be remitted through ADs.
6. Remittance of proceeds from liquidation of industrial under staking
7. Remittance of royalty, technical know-how & technical assistance fees
8. Repatriation of savings, retirement benefits and salary of foreigners employed in
Bangladesh
9. Investment Facilitating Measures

16. How does the central bank maintain controls over foreign exchange
transactions in Bangladesh?
Or, Explain about Foreign exchange restrictions and foreign exchange
controls
Foreign exchange restrictions and foreign exchange controls occupy a special place
among the non-tariff regulatory instruments of foreign economic activity. Foreign
exchange restrictions constitute the regulation of transactions of residents and
nonresidents with currency and other currency values. Also an important part of the
mechanism of control of foreign economic activity is the establishment of the
national currency against foreign currencies.

There are foreign exchange control and currency regulations in Bangladesh. The
Foreign Exchange Regulation Act of 1947 (FERA) regulates all foreign payments and
any sale, exchange, lending and conversion of currencies and securities. Under the

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Act, all foreign exchange activities must be performed by an authorised dealer.
Guidelines for foreign exchange transactions based on FERA issued by the Central
Bank of Bangladesh also apply.

17. Suggest the changes that can be made in the exchange control
regulations to create a conductive and market friendly business
environment
1. The transition from tariffs to non-tariff barriers: One of the reasons why
industrialized countries have moved from tariffs to NTBs is the fact that developed
countries have sources of income other than tariffs. Historically, in the formation of
nation-states, governments had to get funding. They received it through the
introduction of tariffs. This explains the fact that most developing countries still rely
on tariffs as a way to finance their spending. Developed countries can afford not to
depend on tariffs, at the same time developing NTBs as a possible way of
international trade regulation. The second reason for the transition to NTBs is that
these tariffs can be used to support weak industries or compensation of industries,
which have been affected negatively by the reduction of tariffs. The third reason for
the popularity of NTBs is the ability of interest groups to influence the process in
the absence of opportunities to obtain government support for the tariffs.
2. Non-tariff barriers today: With the exception of export subsidies and quotas,
NTBs are most similar to the tariffs. Tariffs for goods production were reduced
during the eight rounds of negotiations in the WTO and the General Agreement on
Tariffs and Trade (GATT). After lowering of tariffs, the principle of protectionism
demanded the introduction of new NTBs such as technical barriers to trade (TBT).
According to statements made at United Nations Conference on Trade and
Development (UNCTAD, 2005), the use of NTBs, based on the amount and control
of price levels has decreased significantly from 45% in 1994 to 15% in 2004, while
use of other NTBs increased from 55% in 1994 to 85% in 2004.
Increasing consumer demand for safe and environment friendly products also have
had their impact on increasing popularity of TBT. Many NTBs are governed by WTO
agreements, which originated in the Uruguay Round (the TBT Agreement, SPS
Measures Agreement, the Agreement on Textiles and Clothing), as well as GATT
articles. NTBs in the field of services have become as important as in the field of
usual trade.
Most of the NTB can be defined as protectionist measures, unless they are related
to difficulties in the market, such as externalities and information asymmetries
between consumers and producers of goods. An example of this is safety standards
and labeling requirements.
The need to protect sensitive to import industries, as well as a wide range of trade
restrictions, available to the governments of industrialized countries, forcing them to
resort to use the NTB, and putting serious obstacles to international trade and
world economic growth. Thus, NTBs can be referred as a new of protection which
has replaced tariffs as an old form of protection.

3. Limits of Foreign Exchange Trading

The foreign exchange market of the country is confined to the city of Dhaka. The 32
scheduled banks operating as authorized dealers in the inter-bankforeign exchange

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market are not permitted to run a position beyond certainlimits. In the event of
speculation on an appreciation of the value, anauthorized dealer may buy more
foreign currencies than it needs, but at theend of the day it must maintain its limit
by selling excess currencies either inthe inter-bank market or to customers.
Authorized dealers maintain clearingaccounts with the Bangladesh Bank in dollar,
pound sterling, mark and yento settle their mutual claims. If there any excess
foreign exchange holdingsexist after these transactions, it is obligatory for them to
sell it to theBangladesh Bank. In case of shortfall of the limit, authorized dealers
have tocover it either through purchase from the market or from the
BangladeshBank.

18. Major Factors that Affect the Foreign Exchange Market in Bangladesh
Some of the major factors that affect the foreign exchange market in Bangladesh
are:
i) Exchange rates
ii) Remittances
iii)Foreign Exchange Reserve
iv) Foreign Exchange Regulations

19. What are the various types of letter of credit? What are the parties
involved in a letter of credit?
[
- Unconfirmed L/C-
- Confirmed L/C-
- Standby L/C-
- Revolving L/C-
- Transferable L/C
- Back to Back L/C-
- Pre-Advise-
- Tender Guarantee(Bid Bond)-
- Performance Guarantee(Performance Band)
- Advance Payment Guarantee-
- Facility Guarantee, Maintenance Guarantee, Shipping Guarantee-
- Commercial L/C
- Bank Guarantee ]

The different types of Letter of Credit (LC) can be categorized as follows: -

1. Confirmed LC: It issued by a foreign bank, with validity confirmed by a
bank of origin. A seller who requires a confirmed LC from the buyer is assured of
payment by the origin bank even if the foreign buyer or the foreign bank
defaults.
2. Deferred Payment Credit: It provides for payment some time after
presentation of the shipping documents by seller.
3. Discrepancy LC: When documents presented do not conform to the LC, it is
referred to as a "discrepancy".

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 4. Documentary Credit: Commercial LC provides for payment by a bank to
the name beneficiary, usually the seller of merchandise, against delivery of
documents specified in the credit.
5. Irrevocable LC: LC with a fixed expiration date that carries the irrevocable
obligation of the issuing bank to pay the exporter when all of the terms and
conditions of the LC have been met.
6. Red Clause LC: It allows the exporter to receive a percentage of the face
value of the LC in advance of shipment.
7. Revocable LC: It can be cancelled or altered by the Drawee (buyer) after it
has been issued by the Drawee's bank.
8. Transferable LC: it allows all or a portion of the proceeds to be transferred
from the original beneficiary to one or more additional beneficiaries.
9. LC, Payment by sight draft: Document, issued by a bank per instructions
by a buyer of goods, authorizing the seller to draw a specified terms, usually the
receipt by the bank of certain documents within a given time.
The parties involved in a letter of credit are as follows:
1. Applicant- who is opener of LC, generally a buyer of goods to make invoice
value of goods.
2. Issuing Bank- issues a letter of credit at request of applicant that undertakes to
honor a complying presentation of the beneficiary.
3. Beneficiary- It is the seller of the goods or the provider of the services in a
standard commercial letter of credit transaction.
4. Advising bank- who takes responsibility to communicate and arranges to send
documents to LC opening bank.
5. Confirming bank- confirms and guarantees to undertake the responsibility of
payment or negotiation acceptance under the credit.
6. Negotiating Bank- who negotiates documents delivered to bank by beneficiary
of LC.
7. Reimbursing bank- who authorized to honor the reimbursement claim of
negotiation/ payment/ acceptance.

20. Describe the purposes and the types of pre-shipment export credit.
Pre-shipment finance is required for procurement of goods, processing the raw
materials, packing, baling and storage, transporting the goods to the port of
shipment, freight, inspection and other charges and export duty. It is essentially a
short term credit. It is liquidated by negotiation/ purchase of export bills. Pre-
shipment credit is in most cased granted against irrevocable/ confirmed LCs or firm
contracts received by the exporter form overseas buyers. In all cases, credit-
worthiness and reputation of the foreign buyer needs to be ascertained before
extending such credits. The credit-worthiness and performance of the exporter are
also taken into consideration for sanction of the credit limit.

21. Describe the different types of export credits.

Or, Describe the purposes and the types pre-shipment and Post-
shipment export credit.
Exporter needs finance at two stages: pre-shipment and post-shipment stages. Pre-
shipment finance is required for procurement of goods, processing the raw

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materials, packing, baling and storage, transporting the goods to the port of
shipment, freight, inspection and other charges and export duty, if any.
After the shipment, while he waits for the money from the buyer, he needs money
to get ready for executing future orders. What he can do is selling or discounting
the export bills with his bank to generate funds. It is what call post-shipment credit.
Pre-shipment Export Credit:
1. O/D (Hypothecation): Under this arrangement, limit is sanctioned against firm
export contract/ irrevocable LC on hyphenation of raw materials or finished
goods meant for export.
2. O/O (Pledge): This type facility offer to the customer, integrity is beyond
doubted as it intended for procuring, processing, packing etc. of exportable
merchandise, which can’t be conveniently taken to bank’s custody.
3. Packing Credit: It is sanctioned against security of R/R, B/R, truck receipt, etc.
evidencing transportation of goods from up-country to the port for shipment.
PACKING CREDIT is any loan or advance granted or any other credit provided
by a bank to an exporter for financing the purchase, processing, manufacturing
or packing of goods prior to shipment, on the basis of letter of credit opened in
his favor or in favor of some other person, by an overseas buyer or a confirmed
and irrevocable order for the export of goods from the producing country or any
other evidence of an order for export from that country having been placed on
the exporter or some other person, unless lodgment of export orders or letter
of credit with the bank has been waived.
4. Advance against Red Clause LC
5. Advance against Green Clause LC

Post-shipment Export Credit:

1. Negotiation/ Purchase of Documents
2. Advance against export bills
3. DA/DP/Sight bills
4. Noting/ Protesting
5. Advising fate of the bill
6. Realization of collection charges, Interest etc.
7. Case in Need
8. Clearance, storage, Insurance etc. at destination
9. Mode of Presentation of the bill
10. Finance of export documents of collection basis (FDBC)
11. Discounting of Usance bills (DA Bills)

22. Distinguish between LIM & LTR

LIM: This type of finance is offered to the importer to finance their needs for
meeting the cost including freight, insurance, and customs and excise duty payable
on the imported merchandise. The lending bank mostly pledges the imported
goods. The merchandise is released for the use of the importer (borrower) upon
repayment of the bank’s finance and charges either fully or partially, on production
of the Delivery Order issued by the banker in favor of the borrower.)
LTR: Trust Receipt (TR) is a type of short-term import loan to provide the buyer
with financing to settle goods imported under Letter of Credit where title of goods is

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held by the bank. Under a TR arrangement, the Bank retains title to the goods but
allows the buyer to take possession of the goods on trust for resale before paying
the Bank on TR due date. TR financing is applicable to goods imported under
documentary credit.

23. Discuss the various types of credit facilities offered to importers by

the banks
1. Letter of Credit: This is made in the form of commitment on behalf of the
client to pay an agreed sum of money to the beneficiary of the L/C upon
fulfillment of terms and conditions of the credit.
2. Loan against Trust Receipt (LTR): LTR may provide when the documents
covering an import shipment are given without payment. Importer will hold the
goods of their sale proceeds in trust for the bank; until the loan allowed against
the Trust Receipt is fully paid.
3. Payment against Documents (PAD): It is a post-import finance to settle the
properly drawn import bills received by the bank in case adequate fund is not
available in client’s account.
4. Loan against Imported Merchandise (LIM): The lending bank mostly
pledges the imported goods. The merchandise is released for the use of the
importer (borrower) upon repayment of the bank’s finance and charges. LIM
may be created in two ways:
a) LIM on importer's request
b) Forced LIM
5. Bank Guarantee: The bank, on behalf of importer constituents or other
customers, issues guarantees in favor of beneficiaries abroad. The guarantees
may be both Performance and Financial.
6. Collection of Import Bills: In this case, the importers may be financed that
the bank collect the imports bills by authorized FOREX dealers outside the
country and the importer will collect the bills from local bank.

24. Discuss the various types of post-shipment import finance provided by

the banks
1. Loan against Trust Receipt (LTR): LTR may provide when the documents
covering an import shipment are given without payment. Importer will hold the
goods of their sale proceeds in trust for the bank; until the loan allowed against
the Trust Receipt is fully paid for a period of 30 to 180 days depends on nature
& amount of imported goods.
2. Payment against Documents (PAD): It is a post-import finance to settle the
properly drawn import bills received by the bank in case adequate fund is not
available in client’s account.
3. Loan against Imported Merchandise (LIM): It may be allowed on pledge
of goods, retaining margin 'prescribed on their landed cost, depending of their
categories. The Bank obtains a letter of undertaking and indemnity from the
parties, before getting the goods cleared through LIM account. LIM may be
created in two ways:

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 a) LIM on importer's request: In some cases the importer can’t able to retire
the bill by his own source of fund, he may request the bank to clear the
goods by creating LIM Account.
b) Forced LIM: In some cases importer do not come forward to retire the
goods. In these cases the bank themselves arrange to retire the goods
by pledge in Godown under bank’s lock & key. This type of payment is
called forced LIM.

25. Identify the possible risk associated with import finance and the steps
that can be taken to minimize these risks
Fraud Risks
 There are various types of fraud like documentary fraud, counterpart fraud,
insurance scams, cargo theft, scuttling and piracy. The payment will be
obtained for nonexistent or worthless merchandise against presentation by
forged or falsified documents.
 Credit itself may be funded.
Sovereign and Regulatory Risks
 Performance of the Documentary Credit may be prevented by government
action outside the control of the parties.
Legal Risks
 Possibility that performance of a Documentary Credit may be disturbed by legal
action relating directly to the parties and their rights and obligations under the
Documentary Credit
Risks to the Issuing Bank
 Insolvency of the Applicant
 Fraud Risk, Sovereign and Regulatory Risk and Legal Risks
Country Risk: The factors usually associated with this type of risk are the political
and economic stability of a country, exchange controls, if any, and the country's
penchant for protectionism of domestic industry at short notice. All these factors will
determine whether the country can and will honor their payment commitments-in
time.
Foreign Exchange Risk
Payments and receipts in foreign currency are an everyday occurrence in
international trade and the trader is always at the mercy of exchange rate
fluctuations due to various economic, political and even purely speculative reasons.
Insolvent Applicant: In case of insolvency of the importer, it would be difficult to
trace the proceeds of the goods.

Steps that can be taken to minimize these risks:

1. The bank may not deals with unknown or unrenowned importers in case of
large amount of transaction
2. Before opening LC, the bank should take steps to obtain credit report of the
foreign exporter. Bangladesh Bank also requires the banks to obtain credit
reports when the LC exceeds certain amount.
3. Bank must not need to finance when it knows a tendered document either
contains documents by the parties to be false or contains a forged signature or
a fraudulent alteration.

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 4. Bank must examine all documents stipulated in the credit with reasonable care,
to ascertain whether or not they appear, on their face, to be in compliance with
the terms and conditions.
5. In case of LIM facility, sometimes collateral in the form of landed property is
also be taken in addition to hypothecation/ pledge of the goods imported to
secure liquidation of the loan in time

26. Identify the risk associated with loans granted to the importers
against Trust Receipt and how these risks can be mitigated
However, in practice, Trust Receipt does not secure the position of the bank to a
significant extent. The risks are that—
1. The importer may re-pledge the goods with another bank or person;
2. The importer may sell the goods without remitting the amount into the bank;
3. In case of insolvency of the importer, it would be difficult to trace the proceeds
of the goods.
4. Another hazard is if the LTR have made against the restriction items have
imported subject to obtaining special permission from the concern Government
authorities like drugs, obscene and subversive literatures, firearms, ammunitions
and antiquated items.

Steps taken to mitigate the risks against LTR

1. The bank may not deals with unknown or unrenowned importers in case of large
amount of transaction
2. The bank not to allow the finance in case of shortage of importer’s experience,
reliability and reputation
3. The bank may not grant a LTR in case insolvent parties
4. The bank may not allow a LTR in case restriction items by the Government

27. Briefly discuss the advantages and disadvantages of financing imports

under LTR
Advantages/ Importance of LTR:
A trust receipt is typically used when a bank has lent money for, say, import of
goods, but the goods have to be released to the importer so they can be sold or
prepared for sale.
But until the loan has been repaid, the goods still belong to the bank. The trust
receipt evidences the bank's ownership of the goods. The borrower agrees to put
the goods at the disposal of the bank if required to do so, to keep them separate
from other goods etc. so they can be identified.
Trust receipts normally have a time limit associated with them. This is the time by
which the borrower's business cycle can be expected to have generated the money
to repay the loan.
It has to be said that the security provided by a trust receipt is rather poor. As its
name suggests, the borrower is trusted not to violate the terms of the agreement.
There are frequent cases of banks finding that they can't actually recover their
collateral.

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Disadvantages of LTR:
One disadvantage of trust receipt financing is the requirement that a trust receipt
be issued for specific goods. For example, if the security is autos in a dealer’s
inventory, the trust receipts must indicate the cars by registration number. In order
to validate its trust receipts, the lending institution must send someone to the
borrower’s premises periodically to see that the auto numbers are correctly listed
because auto dealers who are in financial difficulty have been known to sell cars
backing trust receipts and then use the funds obtained for other operations rather
than to repay the bank. Problems are compounded if the borrower has a number of
different locations, especially if they are separated geographically from the lender.
To offset these inconveniences, warehousing has come into wide use as a method
of securing loans with inventory.

28. Define Documentary Credit. What are the advantages of a

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 (such as
documents of title, insurance policies, commercial invoices and regulatory
documents).
A documentary credit is a separate contract from an export contract. The parties to
a documentary credit deal with documents, not the goods that the documents
relate to.
Documentary credits are a common method of payment in the international trade of
goods as they offer some protection to both you and your buyer.

The advantages of a Documentary Credit:

For the Exporter/Seller:
1. The seller has the obligation of buyer's bank's to pay for the shipped goods;
2. Reducing the production risk, if the buyer cancels or changes his order
3. The opportunity to get financing in the period between the shipment of the
goods and receipt of payment (especially, in case of deferred payment).
4. The seller is able to calculate the payment date for the goods.
5. The buyer will not be able to refuse to pay due to a complaint about the goods

For The Importer/Buyer:

1. The bank will pay the seller for the goods, on condition that the latter presents
to the bank the determined documents in line with the terms of the letter of
credit;
2. The buyer can control the time period for shipping of the goods;
3. By a letter of credit, the buyer demonstrates his solvency;
4. In the case of issuing a letter of credit providing for delayed payment, the seller
grants a credit to the buyer.
5. Providing a letter of credit allows the buyer to avoid or reduce pre-payment.

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29. Distinguish between documentary credit and documentary collection
Back-to-Back credit is a seller financing tool where seller goes to his bank for
amendment of the master LC and get issued another LC in favor of the main
supplier and also it is a LC where main buyer does not get to know that who is main
supplier.
A transferable letter of credit allows the beneficiary to act as a middleman and
transfer his rights under a letter of credit to another party or parties who may be
suppliers of the goods.

There are two major differences between a documentary collection and a

documentary credit: (1) the draft involved is not drawn by the seller (the "drawer")
upon a bank for payment, but rather on the buyer itself (the "drawee"), and (2) the
seller's bank has no obligation to pay upon presentation but, more simply, acts as a
collecting or remitting bank on behalf of the seller, thus earning a commission for
its services.

30. Describe briefly the types of frauds that occur in connection with
documentary credit.
NEED UPDATE
A letter of credit fraud is a type of scam in which the scammer attempts to make
money via faulty business transactions or tells victims that a letter of credit is an
investment.
1. One way of performing letter of credit fraud is to create a fake company. The
scammer will tell the victim that he or she is a representative for a company that
can ship goods to the victim at very low costs. After the victim signs the letter of
credit, the scammer goes to a bank and collects the money. The company will
then typically disappear, and the victim either will receive nothing or will receive
vastly inferior goods.
2. The second method of performing a letter of credit fraud is to tell the victim that
the letter represents an investment. The scammer tells the victim that he or she
will receive a high interest rate from purchasing the fake letter of credit. Letters
of credit are not investments, however, and cannot be used as such.

31. Discuss the features of Documentary Credit/ Letter of Credit

Characteristics of a Documentary Letter of Credit:
1. a written obligation on the part of the bank to pay a specified amount
subject to meeting of the conditions of the letter of credit stipulated by the
buyer
2. the bank assumes the obligation towards the seller on the basis of request by the
buyer
3. an irrevocable obligation
4. various types of letters of credit:
a. import, export (customer, supplier)
b. notified, confirmed
c. transferable, revolving, standby letter of credit
5. one of the most important and best elaborated payment instruments
6. used in international and domestic trade

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7. certainty for the buyer that payment of a specific amount will not be made
until the seller meets the conditions set by the buyer
8. certainty for the seller that he or she will be paid for the goods after the
conditions of the letter of credit are met

32. Discuss the duty and responsibility of Opening Bank/ Issuing Bank
under confirmed L/C
1. Duty owned to the applicant:
i. The duty to issue an efficacious credit: The buyer has approach to opening of
a documentary credit in favor of the seller, on the terms set out in the
contract of sale that a contractual relationship comes into existence between
the buyer and the bank.
ii. The duty to receive and examine the required documents and make payment
in accordance with the credit's stipulation.
iii. The fraud exception: The fraud exception under a tendered document either
contains statements known by the beneficiary to be false or contains a forged
signature or a fraudulent alteration.

2. Duty owned to the beneficiary:

The obligation is to receive, examine the required documents and make payment.
All that the issuing bank do should be consistent with the rule, actually that is the
duty it owned to the beneficiary. These are:
i. The doctrine of strict compliance and standard for examining the documents
ii. Duty to raise all discrepancies in a reasonable time
3. The issuing bank's duty to reimburse the correspondent bank

33. Discuss the duty and responsibility of Advising Bank/ Corresponding

Bank
Correspondent bank (usually in the exporter's country) of an issuing bank (usually
in the importer's country) that receives a letter of credit (L/C) from the issuing bank
for authenticating it and informing ('advising') the exporter (the L/C's beneficiary)
that a L/C has been opened by the importer in the exporter's favor.

The advising bank usually also takes on other roles in the transaction, such as
1. C the letter of credit (playing the role of the 'confirming bank'),
2. Accepting a bill of exchange by endorsing it (becoming the 'accepting bank')
and/or,
3. Paying the exporter on presentation of documents (becoming the 'paying bank'
or 'negotiating bank').

34. What is meant by balance of payments?

A record of all transactions made between one particular country and all other
countries during a specified period of time. BOP compares the dollar difference of
the amount of exports and imports, including all financial exports and imports. A
negative balance of payments means that more money is flowing out of the country
than coming in, and vice versa. Balance of payments may be used as an indicator of
economic and political stability.

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35. Describe the factors responsible for adverse balance of payments.
1. Low export: due to low demand elasticity for exports and decline of the supply
of goods for export.
2. Increase in demands for imports: due to low production of essential goods in the
domestic economy.
3. Unfavorable terms of trade: due to the fall in price of exports and the rise of
price of exports which leads to low amount of receipts from abroad and the high
amount of payments abroad.
4. Shortage of capital goods: the capital goods then have to be imported at
whatever price.
5. Devaluation policy: which happens when the country's export have low price
elasticity and when the imports have inelastic demand or when other countries
which export similar products also devalue their currencies.
6. Unfavorable climatic condition: This leads to fall in the country’s production,
which leads to low export.

36. What corrective steps a developing country like Bangladesh can take
to correct an adverse balance of payments?
When there is a deficit, a country has to adopt various methods to correct it. The
methods that can be applied include:
(a) Export promotion: One of the best way to promote export is to provide subsidies
to exporters and applying tax exemption and trade fairs. These can encourage and
empower the exporters, and with more production and export the disequilibrium
can be reduced or corrected altogether.
(b) Reducing expenditure on imports: This can be done by imposing high import
tarrifs, thus importation of goods will be reduced thus domestic goods will have to
be more production of domestic goods, the outflow of the government funds will be
reduced.
(c) Devaluation policy: The reduction of currency is made in order to promote
exports and discourage imports, as when a currency is devalued exports become
cheaper while imports become more expensive.
(d) Increasing production: In this, the production of export goods is increased hand
in hand with the increase of the production of goods which would otherwise be
imported.
(e) International cooperation: International organizations such as IMF, the World
Bank and the World Trade Organization, can help to correct the balance of payment
through aids, grants and loans.

37. How does Balance of Trade differ from Balance of Payments?

Or, Difference between Balance of Trade and Balance of Payments

Basis of
Balance of Trade (BOT)
Difference
It defined as difference
1. Definition between export and import of
goods and services.
2. Formula BOT = Net Earning on Export
Balance of Payment (BOP)
It is flow of cash between
domestic country and all other
foreign countries.
BOP = Current Account + Capital

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 - Net payment for imports
If export is more than
import, at that time, BOT will
3.Favourable or
be favorable. If import is
Unfavorable
more than export, at that
time, BOT will be unfavorable
4. Solution of
To Buy goods and services
Unfavorable
from domestic country.
Problem
a) cost of production
b) availability of raw
materials
5. Factors
c) Exchange rate
d) Prices of goods
manufactured at home
It shows debit and credit of
current account.
6. Meaning of
Credit means total export of
Debit and
different goods and services
Credit
and debit means total import
of goods and services in
current account
Account + or - Balancing item (
Errors and omissions)
Balance of Payment will be
favorable, if you have surplus in
current account for paying your
all
past loans in your capital account.
Balance of payment will be
unfavorable, if you have current
account deficit and you took more
loan from foreigners.
To stop taking of loan
from foreign countries.
a) Conditions of foreign lenders.
b) Economic policy of Govt.
c) all the factors of BOT
Credit means to receipt and
earning both current and capital
account and debit means total
outflow of cash both current and
capital account and difference
between debit and credit will be
net balance of payment.

31. What are the principal incentives offered for foreign investment in
Bangladesh?
1. Tax Generally 5 to 7 years. However, for power generation exemption
Exemptions : is allowed for 15 years.
No import duty for export oriented industry. For other industry it is
2. Duty :
@ 5% ad valorem.
i. Double taxation can be avoided in case of foreign investors on
the basis of bilateral agreements.
3. Tax Law : ii. Exemption of income tax upto 3 years for the expatriate
employees in industries specified in the relevant schedule of
Income Tax ordinance.
4. Remittance : Facilities for full repatriation of invested capital, profit and divided.
An investor can wind up on investment either through a decision of
the AGM or EGM. Once a foreign investor completes the formalities
5. Exit :
to exit the country, he or she can repatriate the sales proceeds
after securing proper authorization from the Central Bank.
Foreign investor can set up ventures either wholly owned on in
6. Ownership :
joint collaboration with local partner.

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38. Analyze the favorable and adverse impacts of foreign investment on
Bangladesh economy.

Favorable impacts of foreign investment on Bangladesh economy:

1) Overcoming domestic resource constraint: It inflows are believed to be more
stable and easier to service than other sources of foreign private capital such as
commercial debts or portfolio investment.
2) Raising the productivity of labor and capital: FDI raises the productivity of labor,
and employment quality. Economies of scope and scale and managerial
efficiency can raise the productivity and returns of all production inputs.
3) Generating employment: Increased employment, like investment, will have a
multiplier effect on the economy and stimulate a dynamic growth cycle.
4) Easing the balance of payments constraints: It constitutes an inflow on the
capital account and allows the economy to sustain the deficit on the current
account without devaluing the currency.
5) Raising exports: It is in fact one reason why developing country govt. tries to
attract FDI through the creation of export processing zones (EPZs).
6) Access to technology: FDI brings in new technology, which may have positive
spillover effects for other local firms.
7) Access to markets: It can help host countries gain easy access to the lucrative
markets of the rich countries.
8) Benefits to environment: It have better access to and knowledge of
environmentally sound technologies and are expected to bring such
technologies to the host country.
9) Benefits to consumers: Consumers are benefited from increased FDI inflows in
the form of lower prices and improved product quality.
10) FDI may also contribute increased revenue to the government.

Adverse impacts of foreign investment on Bangladesh economy:

1. Impact on domestic savings: The FDI may also have a negative effect on
domestic savings, as it gives room for an increase in consumption in the
recipient country.
2. Decapitalization effect: FDI brings in capital, but also leads to a stream of
return flow of profit, other investment incomes and accumulated interest, and
repatriation of capital.
3. Effects on balance of payments: FDI have a positive effect on balance of
payments, there must be a strong enough positive trade effect to offset the
negative decapitalization effect.
4. Denationalization effect: The ownership of firms is transferred from domestic to
foreign hands and the foreign share of the nation’s wealth stock increases
relative to local share.
5. Impact on development: The impact of FDI on development also depends upon
the type of FDI, i.e., whether it is in the form of “Greenfield investment” or
“merger and acquisition”.
6. Instability: Contrary to the conventional wisdom that FDI is a stable form of
longer-term foreign capital inflows, an UNCTAD report shows that FDI can also
be a source of considerable financial instability.

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39. What are the measures you would suggest to improve the climate for
foreign investment in Bangladesh.
The measures that would be suggested to improve the environment for foreign
investment are as follows:
1. Capital Controls: Capital controls encourage black markets for foreign currency.
So, it should be a effective controls system for improvement of foreign
investments.
2. Allows a limited capital flight: Another strategy that governments can use to
limit capital flight is to make holding domestic currency more attractive by
keeping it undervalued relative to other currencies or by keeping local interest
rates high.
3. Tackle tax havens and address tax evasion: Tax evasion can be reduced by
relying more on consumption or sales taxes and less on taxes on interest and
profits.
4. Arrangements among control bodies: Agreements among countries and central
banks can add to the credibility of these situations.
5. Reforms in international monitory system: It ensures stability of exchange
rates, and must build upon the principles of cooperation and solidarity.
6. Private capital: One encouraging sign is that private capital has begun to return
to countries for which future prospects have brightened.
7. Reform accounting standards: It must be improved in order to prevent
excessive risk taking as well as tax avoidance and tax evasion practices.

40. What do you mean by Flight of Capital? Describe why & how capital
flight from Bangladesh? What preventive steps you would suggest to
stop capital flight?
Flight of capital is the movement of money from one investment to another in
search of greater stability or increased returns. Sometimes specifically refers to the
movement of money from investments in one country to another in order to avoid
country-specific risk (such as high inflation or political turmoil) or in search of higher
returns. The outflows are sometimes large enough to affect a country's entire
financial system.

Why & how capital flight from Bangladesh:

1. Overvalued Exchange Rate: An anticipated depreciation erodes the value of the
domestic currency, prompting the residents to convert domestic assets into
foreign assts.
2. Financial Sector Inefficiencies: The services provided by the financial sector are
not time-befitting and technology used is not sophisticated enough to meet the
demand of the customers.
3. Monetization of Fiscal Deficits: Fiscal deficits are normally financed by printing
money, which leads to monetary expansion, inflationary pressure, and finally
accentuates the inflation tax.
4. Tax Effects: Due to high income and corporate tax rates, taxpayers frequently
avoid paying taxes by keeping money out of the country.

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5. Political and Economic Uncertainty: The uncertainty factors associated with
occasional political instability and important economic policy announcements
motivate capital flight.
6. Rigidity on Capital Movement: Legal embargo imposed on the transfer of
foreign exchange from the country gives rise to the hundi business.
7. Weak Capital Market: One important point worth mentioning is that historically
the capital market in Bangladesh did not play much prominent role. As result,
the capital may be flight.

Preventive steps you would suggest to stop capital flight:

1. Reform the international monetary system: It ensures stability of exchange
rates, and must build upon the principles of cooperation and solidarity.
2. Allow countries to introduce capital controls: The country should be allowed and
encouraged to use capital controls if they deem it necessary to manage their
economies, prevent contagion, raise revenue, and reduce volatility.
3. Rethink the banking system: A new regulatory system should include an
international supervisory and regulatory body. It prevents banks from becoming
too big to fail without adequate public control.
4. Enforce binding social and environmental standards: It should be put in place in
order to constrain banks & financial institutions to deploy capital in ways that
support the protection.
5. Introduce the speculator pays principle: Global taxes should be implemented
both to address speculative behaviors and to finance global public goods that
can prevent the capital flight.
6. Tackle tax havens and address tax evasion: Tax evasion can be reduced by
relying more on consumption or sales taxes and less on taxes on interest and
profits.
7. Reform accounting standards: It must be improved in order to prevent excessive
risk taking as well as tax avoidance and tax evasion practices.

41. Describe the various methods available to overseas Bangladesh

Nationals for transfer of funds to the home country. What are the
problems normally encountered by them for such transfer?
There are an ever larger number of options for sending money overseas or
processing international money transfers. Below are some of the methods available
to you:
1. Foreign Exchange Providers: When transferring much larger amounts of money,
for purchasing a property or starting up a business for example, or sending
regular payments abroad, it may often be cheaper to use a reputable currency
broker
2. Banks: Most of the UK banks offer money transfers, so long as you hold an
account with them and also the recipient.
3. Money Transfer Operators: It is are companies that only offer money transfer
services, usually through agents, and only send money between countries.
4. Online money transfer services/internet money transfers: For a small
percentage, you can send money via the internet using secure online payment
providers.

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 5. Prepaid money cards: Load up a prepaid card and spend abroad just as you
would a credit card or debit card.

The problems normally encountered by them for such transfer are:

1. Poor infrastructure in rural and semi-urban economy
2. Inadequate reach of private commercial banks within the country
3. Massive information asymmetry in the market
4. Active ‘Hundi’ market
5. Inefficiency of financial institutions
6. Poorly regulated exchange houses
7. Low literacy rate in the country
8. Uneven competition among financial institutions
9. Lack of investment in IT backbone development for market efficiency
10. Absence of a strong central payment gateway for ‘Straight Though Processing
(STP) of payment services
[
Problems created by fund transfer are as follows:
1. Brain drain: Brain drain is the most significant negative side of enjoying fund
transferring for any developing country like Bangladesh. Though we get an
important portion of remittance from our educated skilled person after all it is
not favorable because educated people are very important for our economy.
2. Income inequality: In a specific community, relative income inequality may be
found where there are both emigrants’ families and non-emigrants families due
to the variation in their income levels.
3. Regional disparities: In the same line of above reasoning regional disparities
may be found among emigrants’ intensive regions or districts like Sylhet,
Chittagong, Comilla, Noakhali, Dhaka etc. and less emigrants’ intensive regions
or districts of the country.
4. Increased demand for imported luxury goods: There is a tendency of
remittance earning families to purchase foreign luxury goods which creates
unfavorable condition in the balance of payments.
5. Misuse of remittance: Sometimes the young people of remittance earning family
easily get huge money on their hand and misuse that money creating various
types of immoral and illegal activities.
6. Social insecurity: Sometimes remittance earning families feel insecurity from
hijackers. They are sometimes compelled to pay to the bad section of the
society.]

42. Discuss the trends and main sources of foreign exchange remittances
Trends in Local and Foreign Remittance in Bangladesh
Yr 07-08 in USD Yr 2008-9 in USD Yr 2009-10 in USD
NRB Remittances 7 million 8.5 million 10 million
Local Remittances 14 million 17 million 20 million

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The main sources of Foreign Remittance in Bangladesh:
From Saudi Arabia, over a million workers sent $1,312 million during July-March
period of 2007. In the same period The United Kingdom came out as the second
biggest source of remittance with Bangladeshi Diaspora sending home $657 million
to their relatives at home, closely followed by $656 million from the United States of
America. Non-resident Bangladeshis remitted $559 million from the United Arab
Emirates and $494 million from Kuwait in July-March period of 2007.

43. Analyze the importance/ impact of remittance in the Bangladesh

economy
The ways in which remittances alleviate the poverty of individuals are, in the ‘first
round’ of effects, direct and fairly obvious. They include the following.
1. Survivalist income supplementation. For many recipients, remittances
provide food security, shelter, clothing and other basic needs.
2. Consumption ‘smoothing’. Many recipients of remittances, especially in
rural areas, have highly variable incomes. Remittances allow better matching
of incomes and spending, the misalignment of which otherwise threatens
survival and/or the taking on of debt.
3. Education. In many developing countries, education is expensive at all levels,
whatever the formal commitments of the State. Remittances can allow for the
payment of school fees and can provide the wherewithal for children to attend
school rather than working for family survival.
4. Housing. The use of remittances for the construction, upgrading and repair of
houses is prominent in many widely different circumstances.
5. Health. Remittances can be employed to access preventive and ameliorative
health care. As with education, affordable health care is often unavailable in
many remittance-recipient countries.
6. Debt. Being in thrall to moneylenders is an all-too-common experience for
many in the developing world. Remittances provide for the repayment of debts
and for the means to avoid the taking on of debt by providing alternative
income and asset streams.
7. Social spending. Day-to-day needs include various ‘social’ expenditures that
are culturally unavoidable. Remittances can be employed to meet marriage

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 expenses and religious obligations and, less happily but even more
unavoidable, funeral and related costs.
8. Consumer goods. Remittances allow for the purchase of consumer goods,
from the most humble and labor saving, to those that entertain and make for a
richer life

[Impact on the economy:

Totally the contribution of foreign remittance rising of living standard can
not be described so e a s i l y . S o t h e i m p o r t a n c e o f f o r e i g n r e m i t t a n c e
i n t h e e c o n o m y o f B a n g l a d e s h i s w i d e l y recognized and requires little
reiteration.
1. Impact on the GNP: Increase in foreign remittance also increases the national
income. As the national income increase the consumption of goods by the
country people also increase. So, production of goods by the different
organizations increases as well. It increases our country’s GNP.
2. Impact of remittance on consumption: As the remittance increase the consumption
of goods by the country people also increase.
3. Increase savings: Foreign remittance that comes from different developed
countries is increasing the level of our savings. The remittance
received by our country people is saving in different banks by making
long term or short term deposit.
4. Increase capital: Remittance received from different developed countries which is
saving in different banks a big source of capital. This huge amount of money is
investing is different project by the bank.
5. Impact of remittance on investment: Foreign remittance is increasing the investment
of our country. The remittance is using for small and big investment in
different project, establishing firm or industry, small or big shop which
increases the proper utilization of money.
6. Increase employment: As the investment increase, the employments of our
country also increase. The people of our country are getting jobs in
different project, firm or industries.
7. Impact of remittance on import: It has a bad impact on our economy. By increasing
remittance, it also increases consumption of foreign product. It increasing
the import of foreign product day by day as well, Peoples have
enough money to buy f oreign product, although government is
t r y i n g t o s a v e o u r d o m e s t i c companies by implementing necessary rules
and regulation.]

44. What are your suggestions for improvement of the banking channel
for remittances to Bangladesh at low cost and greater speed?
Steps Taken for Remittance Process Improvement:
Government as well as private sector has undertaken various strategies to make
remittance transfer easier and hassle free. Now, the Nationalized Commercial Banks
(NCBs) have some overseas branches/remittance wings for transferring
remittances. The private commercial banks (PCBs) also become aggressive in
transferring remittances by providing quick and reliable services. Some of the PCBs
also have established oversees branch or correspondence relationship with

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Banks/Exchange Houses. Although the nationalized and private commercial banks
have taken various marketing strategies to transfer remittances, but even today,
the choice of remittance channel is 46% formal and 54% informal.

Recently, illegal transfer of money slid down drastically, as Bangladesh Bank (BB)
has stepped up monitoring of such transactions at home. BB so far gave license to
660 exchange houses to set up offices abroad to facilitate remittance. Local banks
are now able to deliver money to recipients in weeks.

45. What is the Functions of World Bank?

World Bank performs the following functions:
1. Granting reconstruction loans to war devastated countries.
2. Granting developmental loans to underdeveloped countries.
3. Providing loans to governments for agriculture, irrigation, power, transport,
water supply, educations, health, etc
4. Providing loans to private concerns for specified projects.
5. Promoting foreign investment by guaranteeing loans provided by other
organizations.
6. Providing technical, economic and monetary advice to member countries for
specific projects
7. Encouraging industrial development of underdeveloped countries by promoting
economic reforms.

46. Discuss the objectives and roles of the world bank to promote
economic development of its member countries
Some of the most important objectives of World Bank are given below:
1) To promote long-term foreign investment on reasonable terms
2) To provides financial assistance to the poorest developing countries whose per
capita GNP is less than $865 a year
3) To encourages private enterprises in developing countries through its affiliates
4) To assist in reconstruction and development of members by facilitating capital
investment
5) To promote foreign investment by guaranteeing loans provided by other
organizations
6) Encouraging industrial development of underdeveloped countries by promoting
economic reforms

The major roles of World Bank to promote the economic developments in member
countries:
 The Bank is currently involved in more than 1,800 projects in developing
country.
 Currently providing microcredit in Bosnia & Herzegovina, raising AIDS-prevention
awareness in Guinea, supporting education of girls in Bangladesh, improving
health care delivery in Mexico, rebuild Gujarat of India after a devastating
earthquake.
The Roles of members of WB:
 IDA: Provides interest-free loans to countries with sovereign guarantees.

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 IFC: Provides loans, equity, risk-management tools, and structured finance. Its
goal is to facilitate sustainable development by improving investments in the
private sector.
 MIGA: Focuses on improving the FDI of developing countries.
 ICSID: Enhancing capital flow to dispute resolution between governments and
private investors.

47. Role of World Bank in the economic development in Bangladesh

Or, Give a brief account of its assistance to Bangladesh for
development of various sectors of the economy
The World Bank is the coordinator of aid donors in Bangladesh. Since 1972, it has
lent $15 billion in economic development and played a critical role in shaping the
country’s institutions and policies.
A Brief account of World Bank in economic developments is given below:
 In the 1970s, the WB concentrated largely on project lending for achieving food
self-sufficiency, mobilizing domestic resources, improving social indicators, and
enhancing project implementation.
 In the late 1980s, the WB focused on policy reforms at removing the distortions
in trade, pricing, credit allocation, and interest rates to create an environment
conducive to private sector development.
 Currently WB has emphasized to strengthening the financial sector including
transportation, water, sanitation & flood protection, health & social services,
information & communication, public administration & law, finance, agriculture
and industry & trade.
 At present the mentionable projects of the WB are private sector development,
employment generation program for the poorest, integrated agricultural
development, investment promotion & financing facility, rural transport
improvement, etc.

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