PRESTIGE INSTITUTE OF MANAGEMENT AND RESEARCH, INDORE 2, Education & Health Sector Scheme 54, Indore, India

Summer Training Report On INTERNATIONAL TRADE TRANSACTIONS AND ASSOCIATED RISKS At

INDUSIND BANK (INDORE BRANCH)

SUBMITTED BY: NAMRATA CHANDWANI M.B.A (FT) SEM-III

UNDER THE GUIDANCE OF

Syed Tauseef Ahmed (Deputy Vice President, Indusind)

Dr. Sachin Mittal (Professor PIMR)

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DECLARATION

I hereby declare that the project work entitled INTERNATIONAL TRADE TRANSACTIONS AND ASSOCIATED RISKS submitted to Prestige Institute Of Management And Research, Indore is a record of an original work done by me under the guidance of Dr. SACHIN MITTAL, Faculty Member, PIMR and this project work has not performed the basis for the award of any Degree or diploma/ associate ship/fellowship and similar project if any.

NAMRATA CHANDWANI

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GUIDE CERTIFICATE

This is to certify that the project work done on INTERNATIONAL TRADE TRANSACTIONS AND ASSOCIATED RISKS Submitted to Prestige Institute Of Management & Research, is a bonafide work carried out by MS. NAMRATA CHANDWANI under my supervision and guidance. This work has not been submitted anywhere else for any other course. The original work was carried out during 6th June 2011 to 21st July 2011 in IndusInd Bank Indore.

Date: Seal/Stamp of the Organization

DR. SACHIN MITTAL Faculty Mentor

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ACKNOWLEDGEMENT

I would like to express my gratitude to INDUSIND BANK, organization as a whole which gave me the opportunity to undergo my Summer Internship Project for the fulfillment of my academic career and also inculcating the sense of job prospective development in the long term growth for the being an able entrepreneur. My sincere regards and thanks to, Mr. SYED TAUSEEF AHMED (Deputy Vice-President) IndusInd bank MP & CG. Under whose esteemed protg and mentorship I carried out the study. I owe my tutelage, commitment & outcome of my internship to him. He guided, assisted & provided me the necessary plethora of knowledge for conducting the study. I am indebted to my project guide & Dr. SACHIN MITTAL for his timely Support and valuable suggestion and feedback. Without his wealth of knowledge, and the reassurance that he would be there for the guidance and support, I would not have been able to gather the courage to embark on this journey into the unfamiliar world of Finance. I would like to thank our Director Mrs. YOGESHWARI PATHAK for her constant and dedicated service to brighten our careers. I also extend my appreciation, thankfulness to employees of IndusInd bank during the organization study, which helped in getting valuable information, ideas & in action from the employees & executives working in their respective fields.

Namrata Chandwani
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EXECUTIVE SUMMARY

The project is all about International Trading. The trade cycle begins with the agreement to trade. When partners agree to trade, merchandise is exchanged for payment. In the international marketplace, the exporters goals are to be assured of payment and to free capital invested in merchandise during shipping. For the importer, the guarantee of delivery of merchandise and the ability to defer payment are of paramount concern. The level of trust between importer and exporter is the base for a successful transaction. This trust is enhanced by the Role Of A Bank as intermediary to the transaction and on adherence to universally accepted standards of trade. As a responsible third party to international trade, the bank expedites payment and handles the settlement process. The bank fills a vital role that may result from lack of experience, geographic distance and market unfamiliarity. My project highlights the Role Of Bank as an intermediary in International Trading. It explains all the operations that are performed by the Banks right from documentation to payment & all the associated risks. The project also introduces the smaller aspects like Bank Guarantees, Pre and Post shipment Financings, the regulatory bodies involved etc. Both the exporters and importers are benefit from the involvement of a bank as an intermediary in international trade to provide professional counsel in this complex field and facilitate the movement of documents and payments. Majorly the project is focused on Payment Modes available for traders with Letter of Credit payment mode covered in detail and the study of various Risks like Currency Risks, Political Risks, Credit risks etc that are always Associated with International Trade Transactions.

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CONTENTS
TOPIC 1. Company Profile ..
Introduction 1 Board of Director 2 Rating... 2 Accolades. 2 Brand 3 Key Highlights. 4 Ranking of Bank.. 5 Strengthening Distribution Infrastructure... 6 Organisation Structure 7 Financial Position 8 Balance Sheet.... 9 Profit and Loss. 10 Recruitment and Selection. 11-12

PAGE NO.

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Future plans for IndusInd.. 13 Marketing.. 13-14 Area of Operation Competition Advertisement SWOT.. 15-16

2. Introduction to Bank..

Definition.. 17 General Facilities by bank 18 Financial & other Facilities... 19

3. Introduction to Project

Trade. 22 Bank as Intermediately trade Transaction 23 Swift operation by bank 25 Parties involved in trade and their role 27 Method of settlement. 28

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Letter of Credit (Types and Format) 31

4. Export
41-45

Finance

and

Documents

5. Export Pre-Shipment and Post Shipment Finance

Pre-shipment 46 Post 46 Factoring 46 Bank 47 Finance shipment and Finance Forfeiting. guarantees..

6. Risks Associated with International Trade Transaction.

Export 48-49 Credit 49-51 Country 52-53 Currency 54 International risk Political Risk in in trade Export Risk in International transport risk.

Business. export.. trade.

55

Conclusion............................................... Suggestions............................................... Webliography...............................................

56

57

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COMPANYS PROFILE

Profile IndusInd Bank derives its name and inspiration from the Indus Valley civilisation -a culture described by National Geographic as 'one of the greatest of the ancient world' combining a spirit of innovation with sound business and trade practices. Mr. Srichand P. Hinduja, a leading Non-Resident Indian businessman and head of the Hinduja Group, conceived the vision of IndusInd Bank -the first of the new-generation private banks in India -and through collective contributions from the NRI community towards India's economic and social development, brought our Bank into being. The Bank, formally inaugurated in April 1994 by Dr. Manmohan Singh, Honourable Prime Minister of India who was then the countrys Finance Minister, started with a capital base of Rs.1,000 million (USD 32 million at the prevailing exchange rate), of which Rs.600 million was raised through private placement from Indian Residents while the balance Rs.400 million (USD 13 million) was contributed by Non-Resident Indians. The bank is presently headed by Mr. Romesh Sobti- Managing Director, IndusInd Bank. A New Era IndusInd Bank, which commenced its operations in 1994, caters to the needs of both consumer and corporate customers. It has a robust technology platform supporting multi-channel delivery capabilities. The Bank believes in driving its business through technology. It has multi-lateral tie-ups with other banks providing access to their ATMs for its customers. It enjoys clearing bank status for both major stock exchanges - BSE and NSE - and three major commodity exchanges in the country - MCX, NCDEX, and NMCE. It also offers DP facilities for stock and commodity segments. The Bank has been bestowed with the mandate of being a Settlement Banker for six tea auction centres. In a pioneering initiative in 'Green Banking' project, the Bank opened its first solar-power ATM in Maharashtra. The Bank received a series of accolades commencing with the prestigious

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'Technology Bank of the Year-2009' award in the private and foreign bank category from the Indian Banks' Association (IBA).

BOARD OF DIRECTORS
Mr. R. Seshasayee, Chairman Dr. T.T. Ram Mohan Mr. Ajay Hinduja Mr. S.C. Tripathi Mr. Ashok Kini Mrs. Kanchan Chitale (Additional Director) Mr. Vijay Vaid (Additional Director) Mr. R.S. Sharma (Additional Director) Mr. Romesh Sobti, MD & CEO Mr. Y.M. Kale (Alternate Director to Mr. Ajay Hinduja)

RATING:
ICRA AA for Lower Tier II subordinate debt program and ICRA AA- for Upper Tier II bond program by ICRA CRISIL A1+ for certificate of deposit program by CRISIL CARE AA for Lower Tier II subordinate debt program by CARE Fitch AA- for Long Term Debt Instruments and Fitch A1+ for Short Term Debt Instruments by FITCH Ratings.

ACCOLADES :
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2011-2012 1. Panasonic Green Globe foundation Award 2012 in the Business Enterprise Services (UNEP/TERI/KPMG). 2. NASSCOM IT User Award 2012 for Environmental Sustainability (Frost & Sullivan). 3. The CII Environmental Best Practices Award 2012 for the Most Innovative Project. 4. Most Improved Bank Performance of the Year at Financial Leadership Awards 2012 (Bloomberg UTV) 5. M.IT.R- 50 Marketing & IT Recognition Program amongst top 50 brands-(Paul Writer & IBM ).

Brand
IndusInd Bank has been aggressive in its brand building program since last year. As a part of the brand building exercise, the bank has taken many initiatives which have helped the brand connect up with the customers & enhance the visibility quotient. IndusInd Bank had launched its first ever mass media campaign in May-June 2009 along with its punchline Makes you feel richer and since then, the bank has been consistent in communication through Television, Radio, and Outdoor & print advertising. IndusInd Bank understands its customers money is not just money. It is the vehicle to realise their dreams! Hence, the bank aims to ensure that the customers experience with the bank is pleasant and enriching. That they get value for their money, enabling them to lead a richer, fuller, content life. For this, the bank: Offers a new level of banking better services, better understanding of unique needs and better management of finances Demystifies the banking process and makes it more accessible

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Apart from fulfilling traditional banking responsibilities, advises customers on how and where to use their money to get the best out of it

Projects an image of being a young, energetic, modern bank with values of dynamism, confidence and progression

Further, as a banking partner, the bank also aims to help its customers discover how they can do more things with their money.

KEY HIGHLIGHTS 2012

Steady performance in deteriorating macro economic environment Net Interest Income grew 20% Y -o-Y & 8% Q-o-Q inspite of stressed Money Markets Non-Interest Income to revenue remains healthy at 39% Consistent growth in Core Fee Income 60% Y -o-Y & 5% Q-o-Q Credit growth above industry 34% Y -o-Y & 8% Q-o-Q Low exposure to stressed / sensitive sectors Net NPA 0.27%; PCR 72.72%; Restructured Advances 0.26% Credit cost falls to 40 bps

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RECENT RANKING OF INDUSIND BANK BY BUSINESS TODAY MAGAZINE

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STRENGTHENING DISTRIBUTION INFRASTRUCTURE

IndusInd Bank, which commenced its operations in 1994, caters to the needs of both consumer and corporate customers. It has a robust technology platform supporting capabilities. multi-channel delivery

IndusInd Bank has 400 branches and 692 ATMs spread across 270 geographic locations of the country as on March 31, 2012.

AS AT END Branch Networks ATMs Marketing Outlets

FY10 180 356 410

The Bank also has 2 Representative offices, one each in London and Dubai.

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ORGANISATIONAL STRUTURE :

Transactional Banking

Global Market

PRODUCT GROUP

CLIENT GROUP

Consumer banking Consumer finance Retail liabilities Banking Channel management Wealth Management & third party distributions

Corp. & Commercial Corporate & Investment Banking Commercial Banking Business Banking Financial Institutions & public sector

The Business has been organized into CLIENT BASED UNITS and PRODUCT GROUPS that work across client groups with the objective to enhance focus and customer orientation and service levels; Also restructured geographical structure, regional offices and branch structure.

FINANCIAL POSITION
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Q4 FY12

Q4 FY11

Y-o-Y growth (%)

12 months FY12

12 months FY11

YoY growth (%)

Net Profit (Rs. crore) Operating Profit (Rs. crore) Net Interest Income (Rs. crore) Total Non Interest Income (Rs. crore)
Core Fee Income (Rs. crore) EPS (Rs.) (not annualised)

223.38

171.76

30

802.61

577.32

39

379.09

298.03

27

1373.03

1081.67

27

464.40

388.08

20

1704.25

1376.49

24

292.05 61 _

181.63

61

1011.78

713.66

42

263.96

164.85

60

913.24

629.43

45

4.78

3.69

30

17.20

13.16

31

Q-o-Q (%)

FINANCIAL PERFORMANCE HIGHLIGHTS

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Branch Network significantly increased to 400 as against 300 branches, the previous year. The Banks ATMs increased to 692 from 594 ATMs, the previous year. Announces a dividend of 22 % as against 20%, the previous year. Net worth improves to Rs. 4522.37 crore CASA improved to 27.30 % as against 27.15% in 2010-11. Total Revenue improved to Rs. 2,716.03 crore as compared to increase of 30%. Rs 2,090.15 crore, an

Net Profit was Rs. 802.61 crore as against Rs. 577.32 crore in the corresponding period of the previous year, recording a jump of 39 %.

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RECRUITMENT AND SELECTION

STEPS IN RECRUITMENT OF A CANDIDATEAPPROVAL FOR RECRUITMENT

PROCESSING OF REQUEST

CHOOSING A MODE OF SELECTION

INTERVIEW

OFFER TO SELECTED CANDIDATE

Approvals Prior approval shall be obtained from Business Head and Head HR before starting the hiring process for any vacancies on account of: a) Replacements b) New Hires - where persons are required in addition to the existing approved headcount to fill new positions The approval of the Business Head shall be obtained on the Manpower Requisition Form (available on the intranet) before the formal process of New Hires is initiated for any new position. Manpower requisition form needs to highlight proper job description describing the purpose role of the job persons specifications (describing the kind of person - qualification, experience, skill sets, personality attributes etc.)

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Processing Of Approved Request 1. Any permanent position to be filled in must be budgeted & must have Head HR & Business Head approval before hiring. 2. After defining the job specifications and the skill & experience requirements (through a Manpower Requisition Form), it shall be decided whether the position should be internally sourced or through external recruitment. 3. In case of selection process involving internal candidates, Human Resource shall act as a coordinator, so that all issues related to transfer, release etc. between two departments are resolved satisfactorily. 4. In the event of a decision to go for an external source, Human Resource shall be the coordinating point with external agencies. Human Resource shall also be responsible for establishing contracts related to fee structure & processes etc. with the external search firms. This is to ensure uniform & consistent communication on all recruitment matters. Mode of Selection Selection of manpower for new or replacement needs shall be through any of the following modes: A. B. C. D. Open Advertisements Campus Selection Selection through Manpower / Placement Agencies / Head Hunters Internal Selections

Interviewing Process for New Recruits Personal Interview a) After screening the applications received, the short listed candidates should be called for a personal interview. Then the candidates would fill the interview declaration form and present it at the time of personal interview. b) The candidate short listing is based on the collective view of the interview panel. c) The rejected candidates in the Personal Interview Process shall be communicated by a regret letter immediately after the interview. d) The completed interview assessment sheets and other papers of every short listed candidate should be fastened together and sent to the HR department clearly marking the name of the candidate, position to be offered and the location of postings.

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Offer Letter HR will issue offers within the receipt of the interview papers based on the fitment criteria for various positions as per the formats.

Future Plans Of IndusInd :

To expand branch network and ATM network. To continue to optimize balance sheet and business mix to improve profitability. To continue to create a more enhanced and deeper customer focus and leverage customer relationships. To widen and leverage delivery channels and achieve disciplined growth. To improve operating efficiencies. To continue to engage and retain employees. To continue to improve brand equity.

MARKETING:
Areas Of Operation IndusInd Bank being a part of Service Sectors works in the following areas of operation1. Consumer Banking & Finance 2. Credit cards 3. Corporate & Commercial Banking 4. Global Markets 5. Transactional Banking 6. Priority Sector Lending 7. Risk Management 8. Corporate & Global Markets Operations 9. Trade & Foreign Exchange Competitors:

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The major competitors of IndusInd can be categorized as1. Foreign Banks which include HSBC, CitiBank, Standard Chatered Bank. 2. Private Banks which include Axis bank, ICICI, HDFC, Yes bank. 3. Nationalized Banks which include SBI & Group, Bank of Baroda.

Advertising and Sales Promotion:

IndusInd Bank has been aggressive in its brand building program since last year. As a part of the brand building exercise, the bank has taken many initiatives which have helped the brand connect up with the customers & enhance the visibility quotient. IndusInd Bank had launched its first ever mass media campaign in May-June 2009 along with its punchline Makes you feel richer and since then, the bank has been consistent in communication through Television, Radio, and Outdoor & print advertising. IndusInd Bank unveils its new advertising campaign, a series of three ads to communicate a set of innovative services; Cash-On-Mobile, Direct Connect and Quick Redeem Service. The ads are directed by Imtiaz Ali, the well known director of Jab We Met, Love Aaj kal and ROCKSTAR fame. The ad films feature some popular Bollywood actors like Neetu Kapoor and Jimmy Shergill. Along with a series of three ADS to communicate new services like ATM denomination selection, 365 days banking and cheque images along with statements of accounts. The three new Ads have been directed by Rohan Sippy, and Bollywood celebrity Ranvir Shorey will be the main character in the Ad. Through these ad campaigns they are taking their responsiveness theme to customers and reinforcing their commitment to give best-of-class services in the industry. ATM denomination selection and Cheque images along with statement of account are unique features and they are the first bank in India to offer these. These new services are focused on client needs and are an outcome of extensive customer research. All ads, in addition to the humour, are giving the core message of IndusInd Banks commitment to provide a world-class banking experience.

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Some of the famous TV commercials are -

Cash on mobile ATMs

IndusInd bank open 365 days

Direct connect service

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IndusInd check on cheque

IndusInd choice money ATM

IndusInd online payments

SWOT ANALYSIS OF THE ORGANISATION

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STRENGTHS :

Right strategy for right products. Superior customer services vs. competitors.

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Great brand image. Higher degree of customer satisfaction. Lower response time with efficient and effective services. Dedicated workforce aiming at making a long term career in the field

WEAKNESS : Small capital base. No foreign branches. Proper global presence is not there. Lack of funds and resources.

OPPORTUNITIES Profit margins can be good. Scope for extension Overseas. New specialist applications. Could seek better customer deals. Fast-track career development opportunities on an industry-wide basis. An applied research centre to create opportunities for developing techniques to provide value-added services.

THREATS Legislation could impact. High risk is involved Prevailing Competition in the industry. Lack of infrastructure in rural areas could constrain investment. High volume/low cost market is intensely competitive

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INTRODUCTION TO GENERAL BANKING

INTRODUCTION TO BANK
A bank is a financial institution licensed by a government. Its primary activities include borrowing and lending money. Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds. The word 'bank' has been derived from the word 'Banco' which means a banch. Bank is the place where one group of people can save their money for interest which may be generally less than the deprecating value of money or to protect the deprecation of their money and for their money security and other group of people take loan for various purpose mainly for business and investment purpose out of the money deposited by the previous group of people (depositor) paying interest which will be more than the giving interest to the depositor. DEFINITIONS OF BANK According to Oxford English Dictionary, Bank is, An establishment for custody of money received from or on behalf of, its customers. Its essential duty is the payment of the orders given on it by the customers, its profit mainly from the investment of money left unused by them. . Banking Regulation Act, 1949 (Sec. 5(c)), has defined the banking company as, Banking Company means any company which transacts business of banking in India. According to Section 5B, banking means the accepting of deposit of money from the public for the purpose of leading or investment, which are repayable on demand or otherwise and are withdrawable by cheque , draft, and order or otherwise. Different economists, banking professionals and authorities explained their viewpoint regarding bank or commercial bank. It has been rightly said by A.K. Basu that a general definition of a

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bank or banking is by no means easy, as the concepts of banking differ from age to age, and country to country.

GENERAL FACILITIES PROVIDED BY BANK The development of banking is evolutionary in nature. A Bank performs a multitude of functions and services which cannot be put into a single definition. A bank may mean different things to different people. For some it is a storehouse of money, for others an institution of funding for Finance and yet for many others bank is a depository for their savings. Today in English bank is largely understood as an institution that accepts money as a deposit to further lend it out for profit. General facilities provided by banks can be of 2 types: Liabilities business deposits Assets business

LIABILITIES BUSINESS DEPOSITS: 1. Current Account: Current Account is primarily meant for businessmen, firms, companies, public enterprises etc. that have numerous daily banking transactions. Current Accounts are cheque operated accounts meant neither for the purpose of earning interest nor for the purpose of savings but only for convenience of business hence they are non-interest bearing accounts. In a Current Account, a customer can deposit any amount of money any number of times. He can also withdraw any amount as many times as he wants, as long as he has funds to his credit. 2. Savings Bank Account: Savings accounts are accounts maintained by retail financial institutions that pay interest but cannot be used directly as money in the narrow sense of a medium of exchange (for example, by writing a check). These accounts let customers set aside a portion of their liquid assets while earning a monetary return. For the bank,

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money in a savings account may not be callable immediately and therefore often does not incur a reserve requirement freeing up cash from the bank's vault to be lent out with interest.
3. Term Deposits: A term deposit is a money deposit at a banking institution that cannot

be withdrawn for a certain "term" or period of time (unless a penalty is paid). When the term is over it can be withdrawn or it can be held for another term. Generally speaking, the longer the term the better the yield on the money.

ASSETS BUSINESS: It can be further classified as fund based and non-fund based facilitiesFUND BASED FACILITIES: 1. Overdraft: Overdraft facility is given to the current account holders only whereby they can withdraw more than their bank balance upon a certain limit for a specified period. Interest is charged by the banks on the amount actually withdrawn. The objective behind providing overdraft facility to the current account holders is to finance the businessmen for a short period for their business activities. Overdraft facility is a very useful for current accountholders who are businessmen, since it is the best method of raising temporary finance at reasonable rate of interest.

2. Cash Credit: It is an arrangement by which a borrower is allowed to borrow money up to a certain limit. It is an arrangement for a long or medium term and the borrower need not draw the sanctioned amount at once. He can draw the loan amount as and when required. Cash credit is a running account, to which deposits and withdrawals can be made frequently. Interest is charged only for the amount withdrawn and not on the total amount of loan sanctioned. This arrangement can be made by the bank against the pledge or hypothecation of goods. This type of loan

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provides flexibility because the sanctioned limit can be changed according to the needs of the borrower. It is the most favorable form of loan.

3.

Term Loans:

It easy facility whereby a lump sum amount advanced to the borrower, which is repayable after an agreed period. Short-term, medium-term and long-term loans are granted by the banks for personal and commercial purpose. They are generally sanctioned against a security. Interest is charged by the banks on the total amount of the loan whether used or not. Loans that are granted for a period upto five years are called short-term loans, loans granted between five to seven years are called medium term loans and loans granted for more than seven years are called as long term loans.

4. Bill Discounting: Banks usually grants loans to their customers by discounting bills of exchanges. The amount of the bill after deducting the discount is credited to the account of the customer. The bank receives the interest in advance at the time of discounting. The bank receives the interest in advance at the time of discounting. The bank collects the full amount of bill on maturity from the drawee of the bill. Sometimes, banks purchase the bills instead of discounting. Thus, the bank grants loan to the borrower against the security of the bills. It is a clean advance on which the bank has to rely on the credit-worthiness of the parties of the bill.

NON-FUND BASED FACILITIES: 1. Letter of Credit:

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The Basic objective of Letter of Credit is to facilitate orderly movement of trade. It is therefore necessary that the evidence of movement of goods is present. Banks are not connected with the quality / quantity of the goods and are concerned only with the documents which should conform to the terms and conditions of Letter of Credit. 2. Bank Guarantees: Bank Guarantee is a contract to perform the promise or discharge the liability of a third person in case of his default. Various types of guarantees offered are financial, performance, bid bond, tenders, customs, etc. Our guarantees are well accepted. Our overseas correspondent bank alliances also enable us to issue guarantees overseas for participation in global tenders, etc.

OTHER FACILITIES Apart from the main facilities, the banks also provide financial services to the corporate sector and business society. These are as follows:

1. Merchant Banking: Merchant Banking is an organisation which underwrites securities for companies, advises in various activities. Any person who is engaged in the business of issue management either by making arrangements regarding selling, buying or subscribing to securities or acting as manager, consultant, adviser or rendering corporate advisory services in relation to issue management is known as a merchant banker. Merchant Banks are financial institutions which provide specialized facilities including acceptance of bills of exchange, corporate finance, portfolio management and other facilities.

Services Rendered by Merchant Bankers

Corporate Counseling Project Counseling Loan Syndication

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 Issue Management Portfolio Management Advisory Services relating to mergers, acquisitions etc. Working Capital Management.

2. Leasing: Banks have started funding the fixed assets through leasing. It refers to the renting out of immovable property by the bank to the businessmen on a specified rent for a specific period on terms which may be mutually agreed upon. A written agreement is made in this respect. The banks have started subsidiaries to transact equipment-leasing business with the permission of RBI.

3. Mutual Fund: A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund:-

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Savings form an important part of the economy of any nation. With savings invested in various options available to the people, the money acts as the driver for growth of the country. Indian financial scene too presents multiple avenues to the investors. Though certainly not the best or deepest of markets in the world, it has ignited the growth rate in mutual fund industry to provide reasonable options for an ordinary man to invest his savings. Investment goals vary from person to person. While somebody wants security, others might give more weight age to returns alone. Somebody else might want to plan for his childs education while somebody might be saving for the proverbial rainy day or even life after retirement. With objectives defying any range, it is obvious that the products required will vary as well. 4. Credit Cards: Credit Card is a small plastic card that allows its holder to buy goods and services on credit and to pay at fixed intervals through the card issuing bank. It may also be use for the purpose of obtaining cash from the branches of issuing bank or branches of certain other banks with which arrangements have been made. Banks may a specific annual charge to their cardholders. 5. ATM:

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Automated Teller Machines also known as any time money is a computer-controlled device at which the customer can make withdrawals or deposits, check the balance in his account or even request an appointment with the loan officer all without involving a human operation. In order to use the system, a customer is issued a plastic card which is quoted with customers name and account number. 6. Debit Card: A debit card is basically like an ATM card on the move or like bank a/c on the move. It enable user to access his/her bank account for payment. When she/he makes any purchase using debit card, then his/her bank account is instantaneously debited to the extent of the purchase amount.

INTRODUCTION TO THE PROJECT TRADE

Trade refers to buying and selling of goods and services for money or money's worth. It involves transfer or exchange of goods and services for money or money's worth. The manufacturers or producer produces the goods, then moves on to the wholesaler, then to retailer and finally to the ultimate consumer. TRADE CAN BE BROADLY CLASSIFIED UNDER THE FOLLOWING :

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1. Internal OR DOMESTIC TRADE INTERNAL TRADE IS ALSO KNOWN AS HOME TRADE. IT IS CONDUCTED WITHIN THE POLITICAL AND GEOGRAPHICAL BOUNDARIES OF A COUNTRY. IT CAN BE AT LOCAL LEVEL, REGIONAL LEVEL OR NATIONAL LEVEL. HENCE TRADE CARRIED ON AMONG TRADERS OF DELHI ,MUMBAI ETC. ITS CALLED HOME TRADE. Internal trade can be further sub-divided into two groups, viz., Wholesale Trade: IT
INVOLVES BUYING IN LARGE QUANTITIES FROM PRODUCERS OR MANUFACTURERS AND SELLING IN LOTS TO RETAILERS FOR RESALE TO CONSUMERS. WHOLESALER IS A LINK BETWEEN MANUFACTURER AND RETAILER. HIM.

THE

WHOLESALER OCCUPIES

PROMINENT POSITION SINCE MANUFACTURERS AS WELL AS RETAILERS BOTH ARE DEPENDENT ON

WHOLESALER ACTS AS AN INTERMEDIARY BETWEEN PRODUCERS AND RETAILERS.

INVOLVES BUYING IN SMALLER LOTS FROM THE WHOLESALERS AND SELLING

Retail Trade: IT

IN VERY SMALL QUANTITIES TO THE CONSUMERS FOR PERSONAL USE. LAST LINK IN THE CHAIN OF DISTRIBUTION. AND CONSUMERS.

THE

RETAILER IS THE

HE

ESTABLISHES A LINK BETWEEN WHOLESALERS

2. External Trade or Foreign Trade: External trade also called as Foreign trade. It refers to buying and selling between two or more countries. For instance, If Mr. X who is a trader from Mumbai, sells his goods to Mr. Y another trader from New York then this is an example of foreign trade. External trade can be further sub-divided into two groups, viz., Export Trade: The definition of Export is when you trade something out of the country. In economics, an export is any good or commodity, transported from one country to another country in a legitimate fashion, typically for use in trade. In simple words, when a trader from home country sells his goods to a trader located in another country, it is called export trade. For e.g. a trader from India sells his goods to a trader located in China. Import Trade: An import is any goods (e.g. a commodity) or service brought in from one country to another country in a legitimate fashion, typically for use in trade. In simple words, when a trader in home country obtains or purchase goods from a trader located in another country, it is called import trade. For e.g. a trader from India purchase goods from a trader located in China.

38
P.I.M.R, INDORE

International trade is a complex process because the amount of risk involved is higher is case of International trade than in Domestic trade. RISK: The differentiating factor - Domestic Trade Vs International Trade; 1. Buyer insolvency (purchaser cannot pay); 2. Non-acceptance (buyer rejects goods as different from the agreed upon specifications); 3. Credit risk (allowing the buyer to take possession of goods prior to payment); 4. Regulatory risk (e.g., a change in rules that prevents the transaction); 5. Intervention (governmental action to prevent a transaction being completed); 6. Political risk (change in leadership interfering with transactions or prices); 7. War and other uncontrollable events; and 8. Unfavourable exchange rate movements (and, the potential benefit of favorable movements) Hedging (Direct/indirect hedging through Banking Channels) Therefore Banks are involved in the process to make the complex task easier for the buyer and seller.

BANK AS AN INTERMEDIATETARY IN TRADE TRANSACTIONS

It is impossible for buyers and sellers to be in international trade without involving the banks for all the services they provide such as advice on financial issues and the potential risks involved. It is true that one critical hurdle is the lack of information on international trade processes, documentation and banking procedures necessary to carry on with business abroad. For result oriented and cost effective international trade, you will very definitely need access to accurate and timely information and a sound knowledge of banking. The Banks help the buyer and seller in a number of ways. It throws light on the following information: Overview of International Trade 1. Flow of goods from seller to buyer 2. Flow of Payment from buyer to seller

39
P.I.M.R, INDORE

3. In accordance with a contract of sale Documentary requirements 1. Buyer - What documents does he needs? 2. Seller - With what documents will he be able to supply? 3. Country of export - what documents are required under the regulations of the exporting country? 4. Country of import - what documents are required under the regulations of the importing country? The key role played by any bank in Trade Transactions is TRADE FINANCE. Trade Finance can be defined as: Trade financing is the provision of any form of financing that enables a trading activity to take place and which may be made directly to the supplier, to facilitate procurement of items for immediate sale and/or for storage for future activities, or it could be provided to the buyer, to enable him meet contract obligations. The availability of trade finance, particularly in developing and leastdeveloped countries, plays crucial role in facilitating international trade. Exporters with limited access to working capital often require financing to process or manufacture products before receiving payments. Conversely, importers often need credit to buy raw materials, goods and equipment from overseas.

Other roles played by BANKS in TRADE Provide Information to buyers and sellers (advisory role) Initial International Trade Contract Settlements for Trade Transactions Provide Financing Manage currency risks Take market risks

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P.I.M.R, INDORE

In the Basic agreement (International Trade Sale Contract) between the buyer and seller the bank provides guidance for all the following terms: 1. 2. 3. 4. 5. 6. 7. 8. Preliminary Quotation & Commitment (Invoicing / order etc) The Merchandise (goods to be imported / exported) Packing (instructions regarding packing of imported / exported merchandise) Method of Settlement (Immediate or Credit / Advance / LC Collection???) Shipping Instructions (trans shipment partial shipment etc) Price and its components (INCOTERMS 2000) Delivery Mode ,Period, Place (Sea, Air, Road place of shipment and last date of shipment) Documents (Invoice, packing list, inspection report, certificate of origin, BL/AWB etc)

SWIFT OPERATIONS BY BANKS

It (Society for Worldwide Interbank Financial Telecommunications) is Cooperative Society under Belgium Law and owned and controlled by its members-share holders. It has a board of 25 Independent directors appointed by the shareholders who are responsible for overseeing and governing the company. The National Bank of Belgium, the central bank of the country in which SWIFT head quarters are located and which is under arrangement with central Banks of G-10 countries i.e. Belgium, Canada, France, Germany, Italy, Japan, The Netherlands, United Kingdom, Unites States, Switzerland, Sweden, and the European Central Bank. A new SWIFT member will pay a onetime entry fee and recurring service fees to SWIFT. BENEFITS OF JOINING SWIFT; 1. 2. 3. 4. 5. 6. Cost is much lower than telex message Use of standard formats for messages results in consistency. Improved accuracy. Timely delivery. Confidentiality and security. Reduced risk.

SWIFT OPERATIONS- SERIES

Serie s

Description

Examples

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Series Deals in direct 1 ** customer related messages. Series Deals in Financial 2 ** Institution Transfers. Series Deals in Buying and 3 ** Selling of Two Currencies. Series Deals in Collections. 4 **

Single customer transfer i.e.MT103 (TT) General Financial Institutions Transfer i.e. MT202 (Imports) Forward Rate Agreement Confirmation i.e. MT340 (Treasury) Advice of payment i.e. MT400 (Collection Payment)

Series Deals in sale /purchase Order to Buy i.e. MT500 5 ** of Securities. (Treasury) Series Deals in Precious Metal Precious metal Trade 6 ** Trade. Confirmation i.e. MT600 Series Deals in Documentary Issue of Documentary Credit 7 ** Credit Operations. i.e. MT700 Series Deals in Travelers 8 ** Cheques. T/C Settlement Advice i.e. MT802

Series Deals in Miscellaneous Miscellaneous MT-999 9 ** Purpose Messages

Various Parties Involved In International Trade Transactions & their Roles

Role of Various Parties

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Exporter The seller ships the goods and then hands over the document related to the goods to their banks with the instruction on how and when the buyer would pay. Exporter's Bank The exporter's bank is known as the remitting bank, and they remit the bill for collection with proper instructions. The role of the remitting bank is to: Check that the documents for consistency. Send the documents to a bank in the buyer's country with instructions on collecting payment. Pay the exporter when it receives payments from the collecting bank. Buyer/Importer The buyer / importer is the drawee of the Bill. The role of the importer is to: Pay the bill as mention in the agreement (or promise to pay later). Take the shipping documents (unless it is a clean bill) and clear the goods. Importer's Bank This is a bank in the importer's country: usually a branch or correspondent bank of the remitting bank but any other bank can also be used on the request of exporter. The collecting bank act as the remitting bank's agent and clearly follows the instructions on the remitting bank's covering schedule. However the collecting bank does not guarantee payment of the bills except in very unusual circumstance for undoubted customer, which is called availing. Importer's bank is known as the collecting / presenting bank. The role of the collecting banks is to: Act as the remitting bank's agent. Present the bill to the buyer for payment or acceptance. Release the documents to the buyer when the exporter's instructions have been followed. Remit the proceeds of the bill according to the Remitting Bank's schedule instructions. If the bill is unpaid / unaccepted, the collecting bank: May arrange storage and insurance for the goods as per remitting bank instructions on the schedule. Protests on behalf of the remitting bank (if the Remitting Bank's schedule states Protest). Requests further instruction from the remitting bank, if there is a problem that is not covered by the instructions in the schedule. Once payment is received from the importer, the collecting bank remits the proceeds promptly to the remitting bank less its charges.

Methods of Settlement
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The bank provides financial support to the traders by settlement of all the trade transactions. The transactions are settled in two steps: 1. By making payments on behalf of the customer to the opposite party 2. By collecting payments from the customer Making Payment: Payments are settled in Trade by either of the following methods

1. Clean Payments In clean payment method, all shipping documents, including title documents are handled directly between the trading partners. The role of banks is limited to clearing amounts as required. Clean payment method offers a relatively cheap and uncomplicated method of payment for both importers and exporters. There are basically two types of clean payments: Advance Payment In advance payment method the exporter is trusted to ship the goods after receiving payment from the importer. Open Account In open account method the importer is trusted to pay the exporter after receipt of goods. The main drawback of open account method is that exporter assumes all the risks while the importer get the advantage over the delay use of company's cash resources and is also not responsible for the risk associated with goods.

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2. Payment Collection of Bills in International Trade The Payment Collection of Bills also called Uniform Rules for Collections is published by International Chamber of Commerce (ICC) under the document number 522 (URC522) and is followed by more than 90% of the world's banks. In this method of payment in international trade the exporter entrusts the handling of commercial and often financial documents to banks and gives the banks necessary instructions concerning the release of these documents to the Importer. It is considered to be one of the cost effective methods of evidencing a transaction for buyers, where documents are manipulated via the banking system. There are two methods of collections of bill: Documents Against Payment D/P In this case documents are released to the importer only when the payment has been done. Documents Against Acceptance D/A In this case documents are released to the importer only against acceptance of a draft.

3. Letter of Credit L/c Letter of Credit also known as Documentary Credit is a written undertaking by the importers bank known as the issuing bank on behalf of its customer, the importer (applicant), promising to effect payment in favour of the exporter (beneficiary) up to a stated sum of money, within a prescribed time limit and against stipulated documents. It is published by the International Chamber of Commerce under the provision of Uniform Custom and Practices (UCP) brochure number 500. One of the many advantages of a letter of credit is its almost universal acceptance throughout the world. A letter of credit can afford important advantages to both the exporter and the importer that other payment methods cannot offer. In addition to the security of payment, which does not depend upon the importers financial condition, the exporter can continue to control title to the merchandise until payment is actually made or the documents are accepted for payment. The importer, in turn, gains the advantage of time in making payment, doing so only when the documents providing shipment are presented.

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PAYMENT RISK LADDER

EXPORTER
LEAST SECURE

IMPORTER
OPEN ACCOUNT COLLECTION-DA COLLECTION-DP LETTER OF CREDIT CONFIRMED DC ADVANCE PAYMENT
LEAST SECURE MOST SECURE

MOST SECURE

The letter of credit is a payment method provides an increased level of security for both importers and exporters. Hence its the most preferred mode of payment by the traders. Details of Letter Of Credit are discussed further in the project.

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LETTER OF CREDIT (L/C) DOCUMENTARY COLLECTION

Introduction Letter of Credit L/c also known as Documentary Credit is a widely used term to make payment secure in domestic and international trade. The document is issued by a financial organization at the buyer request. Buyer also provides the necessary instructions in preparing the document. The International Chamber of Commerce (ICC) in the Uniform Custom and Practice for Documentary Credit (UCPDC) defines L/C as: "An arrangement, however named or described, whereby a bank (the Issuing bank) acting at the request and on the instructions of a customer (the Applicant) or on its own behalf: 1. Is to make a payment to or to the order third party (the beneficiary) or is to accept bills of exchange (drafts) drawn by the beneficiary. 2. Authorized another bank to effect such payments or to accept and pay such bills of exchange (draft). 3. Authorized another bank to negotiate against stipulated documents provided that the terms are complied with. A key principle underlying letter of credit (L/C) is that banks deal only in documents and not in goods. The decision to pay under a letter of credit will be based entirely on whether the documents presented to the bank appear on their face to be in accordance with the terms and conditions of the letter of credit. Parties to Letters of Credit Applicant (Opener): Applicant which is also referred to as account party is normally a buyer or customer of the goods, who has to make payment to beneficiary. LC is initiated and issued at his request and on the basis of his instructions. Issuing Bank (Opening Bank) : The issuing bank is the one which create a letter of credit and takes the responsibility to make the payments on receipt of the documents from the beneficiary or through their banker. The payments has to be made to the beneficiary within seven working days from the date of receipt of documents at their end, provided the documents are in accordance with the terms and conditions of the letter of credit. Beneficiary : Beneficiary is normally stands for a seller of the goods, who has to receive payment from the applicant. A credit is issued in his favour to enable him or his agent to obtain payment on surrender of stipulated document and comply with the term and conditions of the L/c. Advising Bank: An Advising Bank provides advice to the beneficiary and takes the responsibility for sending the documents to the issuing bank and is normally located in the country of the beneficiary.

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 Confirming Bank : Confirming bank adds its guarantee to the credit opened by another bank, thereby undertaking the responsibility of payment/negotiation acceptance under the credit, in additional to that of the issuing bank. Confirming bank play an important role where the exporter is not satisfied with the undertaking of only the issuing bank. Negotiating Bank: The Negotiating Bank is the bank who negotiates the documents submitted to them by the beneficiary under the credit either advised through them or restricted to them for negotiation. On negotiation of the documents they will claim the reimbursement under the credit and makes the payment to the beneficiary provided the documents submitted are in accordance with the terms and conditions of the letters of credit. Reimbursing Bank: Reimbursing Bank is the bank authorized to honor the reimbursement claim in settlement of negotiation/acceptance/payment lodged with it by the negotiating bank. It is normally the bank with which issuing bank has an account from which payment has to be made.
12. B/L EXCHANGED FOR GOODS 13. SUBMITS PROOF OF IMPORT TO ISSUING BANK (BILL OF ENTRY)

5. GOODS SHIPPED

BENEFICIARY

APPLICANT

1.COMMERCIAL CONTRACT 2. LC APPLICATION 11. DOCS DEBIT A/C

4. LC ADVICED 6. DOCS 7. NEGOTIATE

SUBMITTED

10. REIMBURSEMENT

THE LC CYCL E

ADVISING BANK
8. DOCS 3. LC ISSUED

ISSUING BANK

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Types of Letter of Credit 1. Revocable Letter of Credit L/c A revocable letter of credit may be revoked or modified for any reason, at any time by theissuing bank without notification. It is rarely used in international trade and not consideredsatisfactory for the exporters but has an advantage over that of the importers and the issuingbank.There is no provision for confirming revocable credits as per terms of UCPDC, Hence theycannot be confirmed. It should be indicated in LC that the credit is revocable. if there is no suchindication the credit will be deemed as irrevocable. 2. Irrevocable Letter of Credit L/c In this case it is not possible to revoke or amended a credit without the agreement of the issuing bank, the confirming bank, and the beneficiary. Form an exporters point of view it is believed to be more beneficial. An irrevocable letter of credit from the issuing bank insures the beneficiary that if the required documents are presented and the terms and conditions are complied with, payment will be made. 3. Confirmed Letter of Credit L/c Confirmed Letter of Credit is a special type of L/c in which another bank apart from the issuing bank has added its guarantee. Although, the cost of confirming by two banks makes it costlier, this type of L/c is more beneficial for the beneficiary as it doubles the guarantee. 4. Sight Credit and Usance Credit L/c Sight credit states that the payments would be made by the issuing bank at sight, on demand or on presentation. In case of usance credit, drafts are drawn on the issuing bank or the correspondent bank at specified usance period. The credit will indicate whether the usance drafts are to be drawn on the issuing bank or in the case of confirmed credit on the confirming bank. 5. Back to Back Letter of Credit L/c Back to Back Letter of Credit is also termed as Countervailing Credit. A credit is known as back to back credit when a L/c is opened with security of another L/c. A back to back credit which can also be referred as credit and counter credit is actually a method of financing both sides of a transaction in which a middleman buys goods from one customer and sells them to another. The practical use of this Credit is seen when L/c is opened by the ultimate buyer in favour of a particular beneficiary, who may not be the actual supplier/ manufacturer offering the main credit with near identical terms in favour as security and will be able to obtain reimbursement by presenting the documents received under back to back credit under the main L/c. The need for such credit arises mainly when: 1. The ultimate buyer not ready for a transferable credit 2. The Beneficiary do not want to disclose the source of supply to the openers.

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3. The manufacturer demands on payment against documents for goods but the beneficiary of credit is short of the funds 6. Transferable Letter of Credit L/c A transferable documentary credit is a type of credit under which the first beneficiary which is usually a middleman may request the nominated bank to transfer credit in whole or in part to the second beneficiary. The L/c does state clearly mentions the margins of the first beneficiary and unless it is specified the L/c cannot be treated as transferable. It can only be used when the company is selling the product of a third party and the proper care has to be taken about the exit policy for the money transactions that take place. This type of L/c is used in the companies that act as a middle man during the transaction but dont have large limit. In the transferable L/c there is a right to substitute the invoice and the whole value can be transferred to a second beneficiary. 7. Standby Letter of Credit L/c Initially used by the banks in the United States, the standby letter of credit is very much similar in nature to a bank guarantee. The main objective of issuing such a credit is to secure bank loans. Standby credits are usually issued by the applicants bank in the applicants country and advised to the beneficiary by a bank in the beneficiarys country. Unlike a traditional letter of credit where the beneficiary obtains payment against documents evidencing performance, the standby letter of credit allow a beneficiary to obtains payment from a bank even when the applicant for the credit has failed to perform as per bond.

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FORMAT OF A LC

BANK : INDUSIND BANK LTD. A.B.ROAD, INDORE - 452 001 (M.P.) INDIA

IMPORTERS CODE NO.: .

PLEASE ESTABLISH WITH YOUR BRANCH / CORRESPONDANCE IN THE BANK OF NEW YORK, FRANKFURT A DOCUMENTARY CREDIT AS PER DETAILS BELOW: 20 31C 23 SENDERS REFERENCE DATE OF ISSUE PREADVISED ON : PREADV /

40A 31D

TYPE OF L/C DATE & PLACE / COUNTRY OF EXPIRY

[X] IRREVOCABLE TRANSFERABLE DATE (YY MM DD) COUNTRY

]RREVOCABLE

&

PLACE /

50 59 32B 39A

NAME & ADDRESS OF THE APPLICANT NAME & ADDRESS OF THE BENEFICIARY WITH TEL, TLX, FAX NOS. CURRENCY CODE & AMOUNT (IN FIGURES & WORDS) SPECIFY, FOB / C&F / CIFFO PERCENTAGE CREDIT AMOUNT TOLERANCE

39C

ADDITIONAL AMT. COVERED

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41D

CREDIT AVAILABLE WITH CREDIT AVAILABLE BY [ ] PAYMENT; [ X ] NEGOTIATION; [ ACCEPTANCE; ]

42C 42a

USANCE OF THE DRAFTS DRAFTS TO BE DRAWN ON

42P 43P 43T

DEFERED PAYMENTS, IF ANY PARTIAL SHIPMENT TRANSSHIPMENT COMBINED SHIPMENT

44A

LOADING ON

44B 44C 44D 45E

FOR TRANSPORTATION TO LATEST DATE OF SHIPMENT(YY/MM/DD) INSURANCE CONFIRMATION

45A

DESCRIPTION OF GOODS : (BRIEF DESCRIPTION WITH TERMS OF PRICE )

46A

DOCUMENTS REQUIRED [ ] [ ] DRAFTS FOR 100% OF INVOICE VALUE FULL SET OF ORIGINAL CLEAN ON BOARD CHARTER PARTY BILL OF LADING TO THE ORDER OF INDUSIND BANK LTD, INDORE NOTIFY APPLICANT MARKED FREIGHT PREPAID. CERTIFICATE OF ORIGIN IN 1 ORIGINAL + 2 COPIES COMMERCE OR EQUIVALENT GOVERNMENT AUTHORITY. SELLERS SIGNED AND STAMPED COMMERCIAL INVOICE COPIES SHOWING DETAILS OF CALCULATIONS. DRAFT SURVEY REPORT ISSUED IN DUPLICATE. FROM CHAMBER OF IN 1 ORIGINAL + 4

[ ] [ ] [ ]

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[ ] [ ]

CERTIFICATE OF WEIGHT IN 1 ORIGINAL + 3 COPIES ISSUED.

47A

ADDITIONAL CONDITIONS

OTHER TERMS AND CONDITIONS

71B

All documents to mention the LC No. and Date. All Transport Documents / Invoice must mention Import License details. [ X ] ALL CHARGES: [ ] (SPECIFY)

SPECIFY, IF ANY CHARGES TO BE BENEFICIARYS A/C PERIOD OF PRESENTATION ADVISING THROUGH BANK

48 57A

IN CONSIDERATION OF YOUR OPENING A LETTER OF CREDIT AS ABOVE, I/WE HEREBY UNDERTAKE TO ACCEPT AND PAY IN DUE COURSE ALL DRAFTS DRAWN WITHIN THE TERMS THEREOF AND/OR TO TAKE UP AND PAY FOR ALL DOCUMENTS NEGOTIATED THERE UNDER ON PRESENTATION, AND IN DEFAULT OF MY/OUR SO DOING YOU MAY SELL THE GOODS BEFORE OR AFTER ARRIVAL AND I/WE UNDERTAKE TO REIMBURSE YOU FOR ANY SHORTFALL THAT MAY OCCUR AND I/WE HERE BY FURTHER UNDER TAKE FORTHWITH ON DEMAND MADE BY YOU WRITING TO DEPOSIT WITH YOU SUCH SUM OR SECURITY OR FURTHER SUM OR SECURITY AS YOU MAY FROM TIME TO TIME SPECIFY AS SECURITY FOR THE DUE FULFILLMENT OF OUR OBLIGATION HEREUNDER AND ANY SECURITY SO DEPOSITED WITH YOU MAY FROM TIME TO TIME SPECIFY AS SECURITY FOR THE DUE FULFILLMENT OF OUR OBLIGATION HEREUNDER AND ANY SECURITY SO DEPOSITED WITH YOU MAY BE SOLD BY YOU ON YOUR GIVING REASONABLE NOTICE OF SALE TO US AND THE SAID SUM OF THE PROCEEDS OF SALE THE SECURITY MAY BE APPROPRIATED BY YOU, IN OR TOWARDS SATISFACTION OF OUR SAID OBLIGATION AND ANY LIABILITY OF OURS ARISING OUT OF THE NON FULFILLMENT THEREOF. YOU ARE TO HAVE A LIEN ON ALL GOODS, DOCUMENTS AND POLICIES AND PROCEEDS THEREOF FOR ANY OBLIGATIONS OF LIABILITIES PRESENT OR FUTURE INCURRED BY YOU UNDER ARISING OUT OF THIS CREDIT. I/WE APPROVE OF THE NEGOTIATION OF DRAFT IS DRAWN UNDER THIS CREDIT BEING CONFINED TO YOUR BRANCHES CORRESPONDENTS.THE RELATIVE SHIPPING DOCUMENTS HAVE TO BE SURRENDERED TO ME/US AGAINST PAYMENT/ ACCEPTANCE. IN AT ANY TIME AND FROM TIME TO TIME HEREAFTER AND AT OUR REQUEST YOU ENHANCE THE AMOUNT OF THE LETTER OF CREDIT OR AMEND ANY OF THE TERMS THEREOF (INCLUDING) EXTENSION OF THE VALIDITY OF THE CREDIT FOR SHIPMENT AND/OR NEGOTIATION OF DOCUMENTS). THEN NOT WITH STANDING THE AMOUNT AND THE TERMS SPECIFIED IN THE APPLICATION, OUR GUARANTEE SHALL COVER AND BE DEEMED TO COVER THE ENTIRE AMOUNT OF THE ENHANCED LETTER OF CREDIT ISSUED BY YOU AND ANY OTHER AMENDMENTS EFFECTED THERE TO AND OUR LIABILITY WILL BE FOR THE ENTIRE AMOUNT OF

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THE LETTER OF CREDIT ENHANCED AND/OR AMENDED AT OUR REQUEST. WE SHALL CONTINUE TO BE BOUND BY ALL THE OTHER TERMS AND CONDITIONS OF THE APPLICATION AND GUARANTEE NOTWITHSTANDING SUCH ENHANCEMENT OR AMENDMENTS FROM TIME TO TIME AS YOU SHALL MAKE AT OUR REQUEST IN THE VALUE AND TERMS OF THE LETTER OF CREDIT. I/WE HEREBY AGREE AND DECLARE THAT IN THE EVENT OF MY/OUR FAILING TO RETIRE THE BILLS DRAWN UNDER L/C ON DUE DATES IN CASE OF USANCE BILLS AND WITHIN 10 DAYS FROM THE DATE OF RECEIPT OF DOCUMENTS BY YOU IN CASE OF SIGHT BILLS YOU SHALL BE AT LIBERTY TO CRYSTALISE THE FOREIGN CURRENCY RUPEE LIABILITY THEREUNDER ON THE DUE DATE OR ON THE EXPIRY OF THE 10TH DAY AS THE CASE MAY BE AND CONVERT THE SAME TO RUPEES AT THE PREVAILING BILL SELLING RATE OR AT THE CONTRACT RATE WHICHEVER APPLICABLE.

I/WE UNDERTAKE TO REMOURSE TO YOU ON DEMAND THE RUPEE EQUIVALENT SO DETERMINED TOGETHER WITH INTEREST THEREON AT NORMAL RATE FROM THE DATE OF NEGOTIATION. THE DATE OF CRYSTALLISATION AND THEREAFTER AT PENAL RATE APPLICABLE THERETO. YOU WOULD BOOK FORWARD CONTRACTS IF I/WE DECIDE TO COVER THE ELLUCTUATIONS IN THE EXCHANGE RATES. I/WE UNDERTAKE TO BOOK SUCH FORWARD CONTRACTS WITH YOU IN AS MUCH AS THE BOOKING OF FORWARD CONTRACTS FORMS PART OF THE ARRANGEMENT BY YOU UNDER THE L/C. IF I/WE BOOK FORWARD CONTRACTS WITH OTHER BANKS UNDER THIS LETTER OF CREDIT. I/WE ARE UNABLE TO PAY TO YOU 1/4% COMMISSION IN LIEU OF EXCHANGE IN ADDITION TO SWAP COST AND INTEREST FROM THE DATE OF NEGOTIATION AT THE FOREIGN CENTRE TILL THE DATE OF CREDIT OF PROCEEDS IN YOUR NOSTRO ACCOUNT. IN CASE I/WE DO NOT BOOK THE FORWARD CONTRACT, I/WE UNDERTAKE TO BUY THE RELATIVE EXCHANGE IN CONNECTION WITH FOREIGN EXCHANGE RETIREMENT OF THE BILLS/DOCUMENTS ETC. I/WE ARE LIABLE TO PAY TO YOU 1/4% COMMISSION IN LIEU OF EXCHANGE IN ADDITION TO SWAP COST AND INTEREST FROM THE DATE OF NEGOTIATION AT THE FOREIGN CENTRE TILL THE DATE OF CREDIT PROCEEDS IN YOUR NOSTRO ACCOUNT.

DATE PLACE

: : FOR .,

Authorised Signatory

REGULATORY REQUIREMENTS
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Opening of imports LCs in India involve compliance of the following main regulation: UCPDC Guidelines Uniform Customs and Practice for Documentary Credit (UCPDC) is a set of predefined rules established by the International Chamber of Commerce (ICC) on Letters of Credit. The UCPDC is used by bankers and commercial parties in more than 200 countries including India to facilitate trade and payment through LC. UCPDC was first published in 1933 and subsequently updating it throughout the years. In 1994, UCPDC 500 was released with only 7 chapters containing in all 49 articles .The latest revision was approved by the Banking Commission of the ICC at its meeting in Parison 25 October 2006. This latest version, called the UCPDC600, formally commenced on 1 July2007. It contains a total of about 39 articles covering all the areas. Serial No. 1. 2. 3. Article 1 to 3 4 to 12 13 to 16 Area General Obligations Liabilities & Responsibilities Consisting Application, Definition & Interpretation Credit vs. Contracts, Documents vs. Goods Reimbursement, Examination of Documents, Complying, Presentation, Handling Discrepant Documents Bill of Lading, Charter Party Bill of Lading, Air Documents, Road Rail etc. Documents, Courier, Postal etc. Receipt. On board, Shippers count, Clean Documents, Insurance documents Extension of dates, Tolerance in Credits, Partial Shipment and Drawings. House of Presentation Effectiveness of Document Transmission and Translation Force Major Act of an Instructed Party Transferable Credits Assignment of Proceeds

4.

17 to 28

Documents

5. 6. 7.

29 to 33 34 to 37 37 to 39

Miscellaneous Provisions Disclaimer Others

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ISBP 2002 The widely acclaimed International Standard Banking Practice(ISBP) for the Examination of Documents under Documentary Credits was selected in 2007 by the ICCs Banking Commission. First introduced in 2002, the ISBP contains a list of guidelines that an examiner needs to check the documents presented under the Letter of Credit. Its main objective is to reduce the number of documentary credits rejected by banks. FEDAI Guidelines Foreign Exchange Dealers Association of India (FEDAI) was established in 1958 under the Section 25 of the Companies Act (1956). It is an association of banks that deals in Indian foreign exchange and work in coordination with the Reserve Bank of India, other organizations like FIMMDA, the Forex Association of India and various market participants. FEDAI has issued rules for import LCs which is one of the important area of foreign currency exchanges. It has an advantage over that of the authorized dealers who are now allowed by the RBI to issue stand by letter of credits towards import of goods. As the issuance of standby of letter of Credit including imports of goods is susceptible to some risk in the absence of evidence of shipment, therefore the importer should be advised that documentary credit under UCP 500/600 should be the preferred route for importers of good.

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EXPORT FINANCE AND DOCUMENTATION

Introduction International market involves various types of trade documents that need to be produced while making transactions. Each trade document is differ from other and present the various aspects of the trade like description, quality, number, transportation medium, indemnity, inspection and soon. So, it becomes important for the importers and exporters to make sure that their documents support the guidelines as per international trade transactions. A small mistake could prove costly for any of the parties. For example, a trade document about the bill of lading is a proof that goods have been shipped on board, while Inspection Certificate certifies that the goods have been inspected and meet quality standards. So, depending on these necessary documents, a seller can assure a buyer that he has fulfilled his responsibility whilst the buyer is assured of his request being carried out by the seller. The following is a list of documents often used in international trade: Air Waybill Bill of Lading Certificate of Origin Combined Transport Document Draft (or Bill of Exchange) Insurance Policy (or Certificate) Packing List/Specification Inspection Certificate

Air Waybills Air Waybills make sure that goods have been received for shipment by air. A typical air way bill sample consists of three originals and nine copies. The first original is for the carrier and is signed by an export agent; the second original, the consignee's copy, is signed by an export agent; the third original is signed by the carrier and is handed to the export agent as a receipt for the goods. Air Waybills serves as: Proof of receipt of the goods for shipment. An invoice for the freight. A certificate of insurance. A guide to airline staff for the handling, dispatch and delivery of the consignment. The principal requirements for an air waybill are:

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The proper shipper and consignee must be mention. The airport of departure and destination must be mention. The goods description must be consistent with that shown on other documents. Any weight, measure or shipping marks must agree with those shown on other documents. It must be signed and dated by the actual carrier or by the named agent of a named carrier. It must mention whether freight has been paid or will be paid at the destination point. Bill of Lading (B/L) Bill of Lading is a document given by the shipping agency for the goods shipped for transportation form one destination to another and is signed by the representatives of the carrying vessel. Bill of landing is issued in the set of two, three or more. The number in the set will be indicated on each bill of lading and all must be accounted for. This is done due to the safety reasons which ensure that the document never comes into the hands of an unauthorised person. Only one original is sufficient to take possession of goods at port of discharge so, a bank which finances a trade transaction will need to control the complete set. The bill of lading must be signed by the shipping company or its agent, and must show how many signed originals were issued. It will indicate whether cost of freight/ carriage has been paid or not: "Freight Prepaid": Paid by shipper "Freight collect": To be paid by the buyer at the port of dischargeThe bill of lading also forms the contract of carriage. To be acceptable to the buyer, the B/L should : Carry an "On Board" notation to showing the actual date of shipment, (Sometimes however, the "on board" wording is in small print at the bottom of the B/L, in which cases there is no need for a dated "on board" notation to be shown separately with date and signature.) Be "clean" & have no notation by the shipping company to the effect that goods/ packaging are damaged.

The main parties involve in a bill of lading are: Shipper: The person who send the goods. Consignee: The person who take delivery of the goods.

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Notify Party: The person, usually the importer, to whom the shipping company or its agent gives notice of arrival of the goods. Carrier :The person or company who has concluded a contract with the shipper for conveyance of goods

The bill of lading must meet all the requirements of the credit as well as complying with UCP500. These are as follows: The correct shipper, consignee and notifying party must be shown. The carrying vessel and ports of the loading and discharge must be stated. The place of receipt and place of delivery must be stated, if different from port of loading or port of discharge. The goods description must be consistent with that shown on other documents. Any weight or measures must agree with those shown on other documents. Shipping marks and numbers and /or container number must agree with those shown on other documents. It must state whether freight has been paid or is payable at destination. It must be dated on or before the latest date for shipment specified in the credit. It must state the actual name of the carrier or be signed as agent for a named carrier.

Certificate of Origin The Certificate of Origin is required by the custom authority of the importing country for the purpose of imposing import duty. It is usually issued by the Chamber of Commerce and contains information like seal of the chamber, details of the good to be transported and so on. The certificate must provide that the information required by the credit and be consistent with all other document, It would normally include: The name of the company and address as exporter. The name of the importer. Package numbers, shipping marks and description of goods to agree with that on other documents. Any weight or measurements must agree with those shown on other documents. It should be signed and stamped by the Chamber of Commerce.

Combined Transport Document Combined Transport Document is also known as Multimodal Transport Document, and is used when goods are transported using more than one mode of transportation. In the case of multimodal transport document, the contract of carriage is meant for a combined transport from the place of shipping to the place of delivery. It also evidence receipt of goods but it does

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not evidence on board shipment, if it complies with ICC 500, Article 26 (a). The liability of the combined transport operator starts from the place of shipment and ends at the place of delivery his documents need to be signed with appropriate number of originals in the full set and proper evidence which indicates that transport charges have been paid or will be paid at destination port. Multimodal transport document would normally show: That the consignee and notify parties are as the credit. The place goods are received, or taken in charges, and place of final destination. Whether freight is prepaid or to be collected. The date of dispatch or taking in charge, and the "On Board" notation, if any must be dated and signed. Total number of originals. Signature of the carrier, multimodal transport operator or their agents.

Commercial Invoice Commercial Invoice document is provided by the seller to the buyer. Also known as export invoice or import invoice, commercial invoice is finally used by the custom authorities of the importer's country to evaluate the good for the purpose of taxation. The invoice must: Be issued by the beneficiary named in the credit (the seller). Be address to the applicant of the credit (the buyer). Be signed by the beneficiary (if required). Include the description of the goods exactly as detailed in the credit. Be issued in the stated number of originals (which must be marked "Original) and copies. Include the price and unit prices if appropriate. State the price amount payable which must not exceed that stated in the credit Include the shipping terms. Bill Of Exchange: A Bill of Exchange is a special type of written document under which an exporter ask importer a certain amount of money in future and the importer also agrees to pay the importer that amount of money on or before the future date. This document has special importance in wholesale trade where large amount of money involved. Following persons are involved in a bill of exchange: Drawer: The person who writes or prepares the bill. Drawee : The person who pays the bill. Payee: The person to whom the payment is to be made. Holder of the Bill: The person who is in possession of the bill. On the basis of the due date there are two types of bill of exchange:

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Bill of Exchange after Date: In this case the due date is counted from the date of drawing and is also called bill after date. Bill of Exchange after Sight : In this case the due date is counted from the date of acceptance of the bill and is also called bill of exchange after sight.

Insurance Certificate Also known as Insurance Policy, it certifies that goods transported have been insured under an open policy and is not actionable with little details about the risk covered. It is necessary that the date on which the insurance becomes effective is same or earlier than the date of issuance of the transport documents. Also, if submitted under a LC, the insured amount must be in the same currency as the credit and usually for the bill amount plus 10 per cent. The requirements for completion of an insurance policy are as follows: The name of the party in the favour which the document has been issued. The name of the vessel or flight details. The place from where insurance is to commerce typically the sellers warehouse or the port of loading and the place where insurance cases usually the buyer's warehouse or the port of destination. Insurance value that specified in the credit. Marks and numbers to agree with those on other documents. The description of the goods, which must be consistent with that in the credit and on the invoice. The name and address of the claims settling agent together with the place where claims are payable. Countersigned where necessary. Date of issue to be no later than the date of transport documents unless cover is shown to be effective prior to that date. Packing List Also known as packing specification, it contains details about the packing materials used in the shipping of goods. It also includes details like measurement and weight of goods. The packing List must: Have a description of the goods ("A") consistent with the other documents. Have details of shipping marks ("B") and numbers consistent with other documents Inspection Certificate Certificate of Inspection is a document prepared on the request of seller when he wants the consignment to be checked by a third party at the port of shipment before the goods are sealed for final transportation.

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Therefore In this process seller submit a valid Inspection Certificate along with the other trade documents like invoice, packing list, shipping bill, bill of lading etc to the bank for negotiation. On demand, inspection can be done by various world renowned inspection agencies on nominal charges.

EXPORT PRE SHIPMENT AND POST SHIPMENT FINANCE:

PRE SHIPMENT FINANCE is issued by a financial institution when the seller wants the payment of the goods before shipment. The main objective behind pre-shipment finance or pre export finance is to enable exporter to: Procure raw materials. Carry out manufacturing process. Provide a secure warehouse for goods and raw materials. Process and pack the goods. Ship the goods to the buyers. Meet other financial cost of the business. POST SHIPMENT FINANCE is a kind of loan provided by a financial institution to an exporter or seller against a shipment that has already been made. This type of export finance is granted from the date of extending the credit after shipment of the goods to the realization date of the exporter proceeds. Exporters dont wait for the importer to deposit the funds. The features of post-shipment finance are: Post-shipment finance is meant to finance export sales receivable after the date of shipment of goods to the date of realization of exports proceeds. Post-shipment finance is provided against evidence of shipment of goods or supplies made to the importer or seller or any other designated agency.

Forfeiting and Factoring.

Forfeiting and factoring are services in international market given to an exporter or seller. Its main objective is to provide smooth cash flow to the sellers. The basic difference between the forfeiting and factoring is that forfeiting is a long term receivables (over 90 days up to 5 years) while factoring is a short term receivables (within 90 days) and is more related to receivables against commodity sales.

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Benefits to Banks Forfeiting provides the banks following benefits: Banks can offer a novel product range to clients, which enable the client to gain 100%finance, as against 80-85% in case of other discounting products. Bank gain fee based income. Lower credit administration and credit follow up. Export Bank Guarantees: A bank guarantee is a written contract given by a bank on the behalf of a customer. By issuing this guarantee, a bank takes responsibility for payment of a sum of money in case, if it is not paid by the customer on whose behalf the guarantee has been issued. In return, a bank gets some commission for issuing the guarantee. Anyone can apply for a bank guarantee, if his or her company has obligations towards a third party for which funds need to be blocked in order to guarantee that his or her company fulfils its obligations (for example carrying out certain works, payment of a debt, etc.). In case of any changes or cancellation during the transaction process, a bank guarantee remains valid until the customer dully releases the bank from its liability. In the situations, where a customer fails to pay the money, the bank must pay the amount within three working days. This payment can also be refused by the bank, if the claim is found to be unlawful. Benefits of Bank Guarantees For Governments 1. Increases the rate of private financing for key sectors such as infrastructure. 2. Provides access to capital markets as well as commercial banks. 3. Reduces cost of private financing to affordable levels. 4. Facilitates privatizations and public private partnerships. 5. Reduces government risk exposure by passing commercial risk to the private sector. For Private Sector 1. Reduces risk of private transactions in emerging countries. 2. Mitigates risks that the private sector does not control. 3. Opens new markets. 4. Improves project sustainability. Bank Guarantees vs. Letters of Credit: A bank guarantee is frequently confused with letter of credit (LC), which is similar in many ways but not the same thing. The basic difference between the two is that of the parties involved . In a bank guarantee, three parties are involved; the bank, the person to whom the guarantee is given and the person on whose behalf the bank is giving guarantee.

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 In case of a letter of credit, there are normally four parties involved; issuing bank, advising bank, the applicant (importer) and the beneficiary (exporter). Another difference is In case of a bank guarantee only becomes active when the customer fails to pay the necessary amount In case of letters of credit, the issuing bank does not wait for the buyer to default, and for the seller to invoke the undertaking.

RISKS ASSOCIATED WITH INTERNATIONAL TRADE TRANSACTIONS

On major grounds the most common risks associated with trade transaction are: 1. 2. 3. 4. Export International Trade Transport Risk Credit Risk in Export Business Country Political Risk in Export Currency Risk in International Trade

International Trade Transport Risk:

Introduction It is quite important to evaluate the transportation risk in international trade for better financial stability of export business. About 80% of the world major transportation of goods is carried out by sea, which also gives rise to a number of risk factors associated with transportation of goods. The major risk factors related to shipping are cargo, vessels, people and financing. So it becomes necessary for the government to address all of these risks with broad based security policy responses, since simply responding to threats in isolation to one another can be both ineffective and costly. Transport Insurance Export and import in international trade, requires transportation of goods over a long distance. No matter whichever transport has been used in international trade, necessary insurance is must for ever good. Cargo insurance also known as marine cargo insurance is a type of insurance against physical damage or loss of goods during transportation. Cargo insurance is effective in all the three cases whether the goods have been transported via sea, land or air. Insurance policy is not applicable if the goods have been found to be packaged or transported by any wrong means or methods. So, it is advisable to use a broker for placing cargo risks.

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Scope of Coverage The following can be covered for the risk of loss or damage: Cargo import, export cross voyage dispatched by sea, river, road, rail post, personal courier, and including associated storage risks. Good in transit (inland). Freight service liability. Associated stock. However there are still a number of general exclusion such loss by delay, war risk, improper packaging and insolvency of carrier. Converse for some of these may be negotiated with the insurance company. The Institute War Clauses may also be added. Regular exporters may negotiate open cover. It is an umbrella marine insurance policy that is activated when eligible shipments are made. Individual insurance certificates are issued after the shipment is made. Some letters of Credit Will require an individual insurance policy to be issued for the shipment, While others accept an insurance certificate. Specialist Covers Whereas standard marine/transport cover is the answer for general cargo, some classes of business will have special requirements. General insurer may have developed specialty teams to cater for the needs of these businesses, and it is worth asking if this cover can be extended to export risks. Cover may be automatically available for the needs of the trade. Example of this are: Project Constructional works insurers can cover the movement of goods for the project. Fine art Precious stones Special Cover can be extended to cover sending of precious stones. Stock through put cover extended beyond the time goods are in transit until when they are used at the destination. Seller's Buyer's Contingent Interest Insurance An exporter selling on, for example FOB (INCOTERMS 2000) delivery terms would according to the contract and to INCOTERMS, have not responsibility for insurance once the goods have passed the ship's rail. However, for peace of mind, he may wish to purchase extra cover, which will cover him for loss or will make up cover where the other policy is too restrictive. This is known as Seller's Interest Insurance. Similarly, cover is available to importers/buyers. Seller's Interest and Buyer's Interest covers usually extended cover to apply if the title in the goods reverts to the insured party until the goods are recovered resold or returned. Loss of Profits/ Consequential Loss Insurance Importers buying goods for a particular event may be interested in consequential loss cover in case the goods are late (for a reason that id insured) and (expensive) replacements have to be found to replace them. In such cases, the insurer will pay a claim and receive may proceeds from the eventual sale of the delayed goods.

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Credit Risk in Export Business:

Introduction Contract risk and credit risk are the part of international trade finance and are quite different from each other. A contract risk is related to the Latin law of "Caveat Emptor", which means "Buyer Beware" and refers directly to the goods being purchase under contract, whether it's a car, house land or whatever. On the other hand a credit risk may be defined as the risk that a counter party to a transaction will fail to perform according to the terms and conditions of the contract, thus causing the holder of the claim to suffer a loss. Banks all over the world are very sensitive to credit risk in various financial sectors like loans, trade financing, foreign exchange, swaps, bonds, equities, and inter-bank transactions. Credit Insurance Credit Insurance is special type of loan which pays back a fraction or whole of the amount to the borrower in case of death, disability, or unemployment. It protects open account sales against non-payment resulting from a customer's legal insolvency or default. It is usually required by manufacturers and wholesalers selling products on credit terms to domestic and/or foreign customers. Benefits of Credit Insurance: 1. Expand sales to existing customers without increased risk. 2. 2 Offer more competitive credit terms to new customers in new markets. 3. Help protect against potential restatement of earnings. 4. Optimize bank financing by insuring trade receivables. 5. Supplement credit risk management. Payment Risk This type of risk arises when a customer charges in an organization or if he does not pay for operational reasons. Payment risk can only be recovered by a well written contract. Recovery cannot be made for payment risk using credit insurance. Bad Debt Protection A bad debt can effect profitability. So, it is always good to keep options ready for bad debt like Confirmation of LC, debt purchase (factoring without recourse of forfeiting) or credit insurance. Confirmation of LC In an international trade, the confirmation of letter of credit is issued to an exporter or seller. This confirmation letter assures payment to an exporter or seller, even if the issuing bank defaults on its payment once the beneficiary meets his terms and conditions. Factoring and Forfeiting Where debt purchase is without recourse, the bank will already have advanced the funds in the debt purchase transaction. The bank takes the risk of non payment.

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Credit Limit Companies with credit insurance need to have proper credit limits according to the terms and conditions. This includes fulfilling the administrative requirements, including notification of overdose and also terms set out in the credit limit decision. Payment of the claim can only be done after a fix period, which is about 6 months for slow pay insurance. In case of economic and political events is six or more than six months, depending on the exporter markets. Credit insurance covers the risk of non-payment of trade debts. Each policy is different, some covering only insolvency risk on goods delivered, and others covering a wide range of risk such as: Local sales, export sales, or both. Protracted default. Political risk, including contract frustration, war transfer. Pre delivery risks. Cover for sales from stock. Non-honouring of letters of credits. Bond unfair calling risks. Like all other insurance, credit insurance covers the risk of fortuitous loss. Key features of credit insurance are: The company is expected to assess that its client exists and is creditworthy. This might be by using a credit limit service provided by the insurer. A Credit limit Will to pay attention to the company's credit management procedures, and require that agreed procedures manuals be followed at all times. While the credit insurer underwrites the risk of non payment and contract frustration the nature of the risk is affected by how it is managed. The credit insurer is likely to pay attention to the company's credit managements procedures, and require that agreed procedures manuals be followed at all times. The credit insurer will expect the sales contract to be written effectively and invoices to be clear. The company will be required to report any overdue or other problems in a timely fashion. The credit insurer may have other exposure on the same buyers or in the same markets. A company will therefore benefit if other policyholder report that a particular potential customer is in financial difficulties. In the event that the customer does not pay, or cannot pay, the policy reacts. There may be a waiting period to allow the company to start collection procedure, and to resolve any quality disputes. Many credit insurers contribute to legal costs, including where early action produces a full recovery and avoids a claim.

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Benefits of Credit Cover Protection for the debtor asset or the balance sheet. Possible access to information on credit rating of foreign buyer. Access to trade finance. Protection of profit margin. Advice on customers and levels of credit. Disciplined credit management. Assistance and /or advice when debts are overdue or there is a risk of loss. Provides confidence to suppliers, lenders and investors.

Country Political Risk in Export:

Introduction Country risk includes a wide range of risks, associated with lending or depositing funds, or doing other financial transaction in a particular country. It includes economic risk, political risk, currency blockage, expropriation, and inadequate access to hard currencies. Country risk can adversely affect operating profits as well as the value of assets. With more investors investing internationally, both directly and indirectly, the political, and therefore economic, stability and viability of a country's economy need to be considered. Measuring Country Risk Given below are the lists of some agencies that provide services in evaluating the country risk: Bank of America World Information Services Business Environment Risk Intelligence (BERI) S.A. Control Risks Information Services (CRIS) Economist Intelligence Unit (EIU) Euro money Institutional Investor Standard and Poor's Rating Group Political Risk Services: International Country Risk Guide (ICRG) Political Risk Services: Coplin O'Leary Rating System Moody's Investor Services Political Risk The risk of loss due to political reasons arises in a particular country due to changes in the country's political structure or policies, such as tax laws, tariffs, expropriation of assets, or restriction in repatriation of profits. Political risk is distinct from other commercial risks, and tends to be difficult to evaluate. Some example of political risks are: Contract frustration by another country, government resulting in your inability to perform the contract, following which the buyer may not make payment and or / on demand bonds may be called. Government buyer repudiating the contract this may be occur if there is a significant political or economic change within the customer's country.

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Licence cancellation or non renewal or imposition of an embargo. Sanctions imposed against a particular country or company. Imposition of exchange controls causing payments to be blocked. General moratorium decreed by an overseas government preventing payment Shortage of foreign exchange/transfer delay. War involving either importing or exporting country. Forced abandonment Revoking of Import/ Exports licence. Changes in regulations.

The following are also considered as political risks in relation to exporting: Confiscation of assets by a foreign government. Unfair calling of bonds. Insurance companies provide political risk covers. These may be purchased: On their own, covering only political risk on the sale to a particular country. For a portfolio of political risks. For the political risks in relation to the sale to another company in your group (where there is a common shareholding and therefore insolvency cover is not available). As part of a credit insurance policy. Pre-Delivery Risks A company can suffer financial loss, if export contract is cancelled due to commercial or political reasons, even before the goods and services are dispatched or delivered. In such a situation, the exposure to loss will depends on: The nature of the contract. If the company can salvage any products and resell them quickly, with a small amount of re working. Any stage payments. If servicing staff have left the country. The extent of the commitments to suppliers. The horizon of pre delivery risk . The customer and country risks. Pre Delivery Cover Credit insurance can be extended to cover pre-delivery risk, in particular, the risk of customer insolvency pre-delivery or political frustration pre-delivery. Sometimes pre-delivery cover can be extended included the frustration of a contract caused by non-payment of a pre delivery milestone, and or non-payment of a termination account, and or bond call. Pre-delivery risks are often complicated and the wording of the cover is worth careful examination. It is to be noted that in the event that it was clearly unwise to dispatch goods,

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credit risk (payment risk) cover would not automatically apply if the company nonetheless went ahead and dispatched head them. Binding contracts cover and Non Cancelable Limits Binding contracts cover and non cancelable limits are not included in pre-delivery cover. However, they provide a commitment from the credit insurer that the cover for dispatches /invoices will not be withdrawn without a prior notice. If the company's customer is overdue, or it is imprudent to dispatch, there is no credit insurance cover for dispatches subsequently made, even where the company holds binding contract cover or non-cancelable limits.

Currency Risk in International Trade

Introduction Currency risk is a type of risk in international trade that arises from the fluctuation in price of one currency against another. This is a permanent risk that will remain as long as currencies remain the medium of exchange for commercial transactions. Market fluctuations of relative currency values will continue to attract the attention of the exporter, the manufacturer, the investor, the banker, the speculator, and the policy maker alike. While doing business in foreign currency, a contract is signed and the company quotes a price for the goods using a reasonable exchange rate. However, economic events may upset even the best laid plans. Therefore, the company would ideally wish to have a strategy for dealing with exchange rate risk. Currency Hedging Currency hedging is technique used to avoid the risks associated with the changing value of currency while doing transactions in international trade. It is possible to take steps to hedge foreign currency risk. This may be done through one of the following options: Billing foreign deals in Indian Rupees: This insulates the Indian exporter from currency fluctuations. However, this may not be acceptable to the foreign buyer. Most of international trade transactions take place in one of the major foreign currencies USD, Euro, Pounds Sterling, and Yen. Forward contract: You agree to sell a fixed amount of foreign exchange (to convert this into your currency) at a future date, allowing for the risk that the buyers payments are late. Options: You buy the right to have currency at an agreed rate within an agreed period. For example, if you expect to receive $35,000 in 3 months, time you could buy an option to convert $35,000 into your currency in 3 months. Options can be more expensive than a forward contract, but you don't need to compulsorily use your option.

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 Foreign currency bank account and foreign currency borrowing : These may be suitable where you have cost in the foreign currency or in a currency whose exchange rate is related to that currency

CONCLUSION

This Project has explained the need to involve Banks as a mediator in trading (especially International Trading) and introduced some of the most common trade finance tools and practices. A proactive role of governments in trade finance may alleviate the lack of trade finance in emerging economies and contribute to trade expansion and facilitation. However, the best long-term solution in resolving the constraints in trade financing is to encourage the growth and development of a vibrant and competitive financial system, comprising mainly private sector players. The absence of an adequate trade finance infrastructure is, in effect, equivalent to a barrier to trade. Limited access to financing, high costs, and lack of insurance or guarantees are likely to hinder the trade and export potential of an economy, and particularly that of small and medium sized enterprises. Hence a correct knowledge of all these aspects of International trade is must for a trader.

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SUGGESTIONS

1. Proactive role of governments in trade finance may alleviate the lack of trade finance in emerging economies and contribute to trade expansion and facilitation. 2. Bank should work according to the rules and regulations made by Regulatory Bodies to prevent any kind of inconvenience. 3. The bank should make all the aspects of trading &the associated risks clear to a trader before getting involved in any kind of transactions. 4. The employees of bank should always give correct suggestions to their clients for hedging risks. 5. Clients should always hedge inventory risks. 6. Clients should always hedge Forex risk.

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WEBLIOGRAPHY

www.sribd.com www.indusind.com www.wikipedia.org www.moneycontrol.com www.tradefinancemagazine.com

BIBLIOGRAPHY Foreign exchange and risk management C. Jeevanandam

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