Contents

PAGE
Foreword iii
Recommended reading v
Syllabus vii
Chapter-heads ix
SECTION 1
MACRO PERSPECTIVE
CHAPTER 1.1
THEORIES OF INTERNATIONAL TRADE

u International trade 3
u International trade theory 3
u Conclusion - Limits of international trade theory 6

CHAPTER 1.2
INTERNATIONAL TRADE POLICY FRAMEWORK

u World trade Organization 7

u Regional trade blocks 8
u Potential negative effects of regional trade agreements 9
u Major regional trading blocks 10
u Mercosur 13

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CHAPTER 1.3
INTERNATIONAL CHAMBER OF COMMERCE

u The ICC’S origins 15

u Practical services to business 15
u Importance of ICC for banks 16
u Section 1 - Self-review 18
SECTION 2
TRADE TRANSACTIONS
CHAPTER 2.1
COMPONENTS OF TRADE
u Key factors in trade 21
u Risks in international transactions 22
u Incoterms 24
u Incoterms outlined 25
u Invisible trade transactions 29
u Countertrade 30
u Merchanting trade 30
u High-seas sale 32

CHAPTER 2.2
MODES OF INTERNATIONAL TRADE

u Clean payments 33
u Bills for collection 34
u Documentary credit 34

CHAPTER 2.3
CLEAN PAYMENT TRANSACTIONS

u Introduction 36
u How it works 36

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CHAPTER 2.4
DOCUMENTARY COLLECTIONS

u Introduction 39
u How it works 39
u Role of various parties 40

CHAPTER 2.5
DOCUMENTARY CREDIT

u Introduction 47
u Parties to letters of credit 48
u Inter-bank communication 49
u Fees and reimbursements 59
u Risks associated with opening import LCS 60
u Isbp 65
u Fedai guidelines 66

CHAPTER 2.6
IMPORTANT TRADE DOCUMENTS

u Documents 68
u Air waybill 69
u Bill of lading (B/L) 69
u Certificate of origin 71
u Combined transport document 72
u Commercial invoice 72
u Draft (or bill of exchange) 73
u Packing list/specification 75
u Section 2 - Self-review 76

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SECTION 3
TRADE FINANCE
CHAPTER 3.1
IMPORTANCE OF TRADE FINANCE

u Term financing for foreign buyers 81

u Export trade finance 82
u Import trade finance 82

CHAPTER 3.2
PRE-SHIPMENT TRADE FINANCE

u Types of pre-shipment finance 83

u Requirements for getting packing credit 84
u Eligibility 85
u Quantum of finance 85
u Different stages of pre-shipment finance 85
u Special cases 88
u Period of credit 90

CHAPTER 3.3
POST-SHIPMENT TRADE FINANCE

u Features 93
u Financing for various types of exports 95
u Types of post-shipment finance 96
u Crystallization of overdue export bills 98
u Options for the exporter 99

CHAPTER 3.4
FORFAITING AND FACTORING

u Brief history 101

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u Documentary requirement 104
u Fee type description 105
u Factoring 106
u Fee type description 110
u Bill discounting vs. factoring 110

CHAPTER 3.5
BANK GUARANTEES

u Direct/indirect guarantee 112

u Direct guarantee 112
u Indirect guarantee 113
u Claim (guarantee utilization) 115
u Uniform Rules for Demand Guarantees (URDG) 117
u URDG 758 117
u Similarities with the guarantee 120
u Area of application 120
u Purpose 120
u Special features 121
u Co-acceptance of bills 121
u Benefits to customer 121
u Benefits to bank 122
u Process flow 122

CHAPTER 3.6
DOMESTIC TRADE FINANCE

u Channel financing 124

u Vendor financing 125
u Section 3 - Self-review 127

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SECTION 4
RISK MANAGEMENT
CHAPTER 4.1
RISK ELEMENTS 131

CHAPTER 4.2
TRANSPORT RISK

u Transport insurance 134

u Scope of coverage 134
u Specialist covers 135
u Seller’s/buyer’s contingent interest insurance 135
u Loss of profits/consequential loss insurance 135
u Charterer’s liability insurance 136

CHAPTER 4.3
CONTRACT AND CREDIT RISK

u Credit risk management 137

CHAPTER 4.4
COUNTRY AND POLITICAL RISK

u Pre-delivery risks 144

u Pre-delivery cover 144
u Binding contracts cover and non-cancellable limits 145

CHAPTER 4.5
CURRENCY RISK

u Currency hedging 146

u Tender to contract risks 147

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u Forward rate vs. spot rate 148
u RBI reference rate 148
u Inter-bank rate 148
u T.T. rate 149
u TC rates 149
u Buying and selling 151
u Speculation 156
u Calculating the forward rate 156

CHAPTER 4.6
WHEN THINGS GO WRONG

u Watch out list 159

u Late payment 159
u Rescheduling 160
u Loss 160
u Dishonoring 161
u Political contract frustration 161
u Section 4 - Self-review 163

CHAPTER 4.7
MARITIME FRAUDS

u Introduction 164
u Definition of maritime fraud 165
u Different types of maritime fraud 165
u Modus operandi 167
u Preventive measures 168
u Conclusion 173
u Terminal questions 174

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SECTION 5
REGULATORY FRAMEWORK
CHAPTER 5.1
REGULATORY FRAMEWORK

u Director General of Foreign Trade (DGFT) 178

u Reserve Bank of India (RBI) 178
u International Chamber of Commerce (ICC) 178
u Foreign Exchange Dealers’ Association of India (FEDAI) 179

CHAPTER 5.2
DGFT REGULATIONS

u General provisions regarding imports and exports 180

u Incentives to exporters 190

CHAPTER 5.3
FOREIGN TRADE POLICY (Exim policy)

u Highlights of exim policy 2015-2020 193

u Miscellaneous 199
l Trade facilitation & ease of doing business 199

CHAPTER 5.4
FOREIGN EXCHANGE Management act

u Some highlights of Fema 204

u Buyer’s/supplier’s credit 206

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CHAPTER 5.5
ICC - UCPDC GUIDELINES 209

CHAPTER 5.6
FEDAI GUIDELINES

u Application of interest 217

u Normal transit period 217
u Merchant trade 218
u Clean instruments 218
u Outward remittances 218
u Guarantees 218
u Section 5 - Self-review 219
SECTION 6
FACILITATION BODIES
CHAPTER 6.1
EXPORT-IMPORT BANK OF INDIA

u Export-import bank of India 223

l The institution 223
l The initiatives 223
u Export credits 225
l Pre-shipment credit 225
l Supplier’s credit 225
l For project exporters 226
l For exporters of consultancy and technological services 226
l Guarantee facilities 226
u Finance for export-oriented units 226
l Term finance (for exporting companies) 226
l Working capital finance (for exporting companies) 227

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l Working capital finance (for non-exporting companies) 227
l Term finance (for non-exporting companies) 227
l Export finance 227
l Equity participation (in Indian exporting companies) 228
l Technology and Innovation Enhancement and Infrastructure 228
Development (tieid) for msme sector
u Overseas investment finance 228
u Confirmation of letters of credit (l/c) by exim bank under the 228
Global Trade Finance Program (GTFP) of the International Fi-
nance Corporation (IFC), Washington dc
l Introduction 228
l Features of the program 229
l How it works 229
u Export services 230
u Lines of credit 230
l Procedural flow chart 231
l Eligible goods 232
l General 232

CHAPTER 6.2
EXPORT CREDIT GUARANTEE Corporation of India

u What is ECGC? 233

u What does ECGC do? 233
u How does ECGC help exporters? 234
u Need for export credit insurance 234
u Credit insurance policies offered to exporters 235
u Credit insurance for banks 236
u Special schemes 236

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Appendix 1
Important trade terms 237

Appendix 2
Deemed exports 242
Appendix 3
Exim bank’s operative lines of credit 245
Appendix 4
Exim bank’s pipeline locs 267
269
Trade finance test

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