International Trade and Foreign Exchange

Short Note

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Asian Clearing Union

Asian Development Bank
Authorized Dealer in Foreign
Exchange
Back-to-Back L/C
Balance of Payments
Balance of Trade
Bill of Entry
Bill of Exchange
Bill of Lading
Certificate of Origin
Charter Party
Consignment Sale
Consular Invoice
Convertibility of Currency
Or, Currency Convertibility
Cross Rate
D/P Bills & D/A Bills
Documentary Frauds in Foreign
Trade
EPZ
Euro Currency
European Union
Exchange Position
Export Policy of Bangladesh
Financial Derivatives
Floating Exchange Rate
Fixed Exchange Rate
Forced LIM
Foreign Correspondents
Foreign Exchange Market
Forward Exchange Contract
Generalized System of Preference
(GSP)

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Gold Standard
Inco-terms
Interest Arbitrage
International Development
Association (IDA)
International Monetary Fund (IMF)
Islamic Development Bank (IDB)
LIBOR
LIM (Loan against Imported
Merchandise)
Long & Short Exchange Position
Money Laundering
Nostro and Vostro Accounts
Off-shore Banking
Open Position (Foreign Exchange)
Option Forward Contract
Packing Credit
Pre-shipment Inspection
Received for Shipment Bill of Lading
Red Clause Letter of Credit
Revolving Letter of Credit
Special Drawing Rights
SWAP
SWIFT
Transport Documents
Value Date
World Bank
World Trade Organization
Reimbursing, Confirming Bank,
0pening Bank, Advising Bank,
Beneficiary Bank, Negotiating Bank,
Reimbursing, Confirming Bank

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1. Asian Clearing Union

The Asian Clearing Union (ACU), with headquarters in Tehran, Iran, was established
on December 9, 1974 at the initiative of the United Nations Economic and Social
Commission for Asia and the Pacific (ESCAP).
It is the simplest form of payment arrangements whereby the participants settle
payments for intra-regional transactions among the participating central banks on a
multilateral basis. The main objectives of a clearing union are to facilitate payments
among member countries for eligible transactions, thereby economizing on the use
of foreign exchange reserves and transfer costs, as well as promoting trade among
the participating countries. The ACU is a clearing houses/payments arrangements
operating in various regions of the world.
2. Asian Development Bank
The Asian Development Bank (ADB) is multilateral development finance institution
established on 22 August 1966 in Manila, Philippines to facilitate economic
development of countries in Asia. The Bank gives special attention to the needs of
the smaller or less-developed countries and priority to regional, sub-regional, and
national projects and programs.
The main functions of ADB are:
i. to extend loans and equity investments for the economic and social
development of its developing member countries (DMCs);
ii. to provide technical assistance for the preparation and execution of
development projects and programs, and for advisory services;
iii. to promote and facilitate investment of public and private capital for
development purposes; and
iv. to respond to requests for assistance in coordinating development policies and
plans of its DMCs.
3. Authorized Dealer in Foreign Exchange
Any type of financial institution that has received authorization from a relevant
regulatory body to act as a dealer involved with the trading of foreign currencies.
Dealing with authorized forex dealers ensure that the transactions are being
executed in a legal and just way.
As per section 2 of Foreign Exchange Regulation act 1947, Authorized Dealer means
a person, for the time being authorized to deal in Foreign Exchange. In other words
Authorized Dealer means a Bank, authorized by Central Bank to deal in foreign
exchange. There are some persons or firms, authorized by Central Bank to deal in
foreign exchange with limited scope, are called Authorized Money Changers.
[Foreign exchange dealers can also be defined as any financial body or institution
that has been given authorization from the Forex regulatory body to act as foreign
currency exchange dealer, dealing with the trade of foreign currencies. Each
country will have its own Forex regulatory body to ensure that all Forex trading are
above board and just.]

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4. Back-to-Back L/C
Two letters of credit, one in favor of the buyer's agent and one financing the seller.
A back-to-back credit is created when an exporter holding an irrevocable Letter of
Credit persuades the buyer's bank (the advising bank) to open a second credit in
favor of the merchandise supplier. The two credits are identical in all respects,
except that the supplier becomes the Beneficiary of the back-to-back credit, and the
amount of the second credit is less than the original export credit. The difference is
the import agent's commission.
5. Balance of Payments
The balance of payments (BOP) is a set of accounts that record a country's
international transactions, and which (because double entry bookkeeping is used)
always balance out with no surplus or deficit shown on the overall basis. A surplus
or deficit, however, can be shown in any of its three component accounts: (1)
Current account, covers export and import of goods and services, (2) Capital
account, covers investment inflows and outflows, and (3) Gold account, covers gold
inflows and outflows. BOP accounting serves to highlight a country's competitive
strengths and weaknesses, and helps in achieving balanced economic-growth.
6. Balance of Trade
Balance of Trade (BOT) is the difference between the monetary value of exports
and imports of a specific country's economic output over a certain period of time. It
is one of many economic fundamentals that affect the relative value of a country's
currency. A positive or favorable balance of trade is known as a trade surplus when
exports exceed imports. Conversely, a negative or unfavorable balance is referred
to as a trade deficit or trade gap. The BOT is also part of a nation's current account,
which includes income from the international investment positions, as well as
international aid and other cross-border transactions.
7. Bill of Entry
A bill of entry is a formal declaration describing goods that are being imported or
exported, including details and the quantity of the goods, along with an estimate of
their value. This document is examined by customs officials to inspect the shipment
to determine whether or not it is consistent with the bill of entry, and discrepancies
can be grounds for legal proceedings. Once the document has been reviewed and
the shipment has been inspected, it can be cleared for sale or transfer. If there is a
problem, customs may opt to confiscate the goods.
8. Bill of Exchange
A written, unconditional order by the drawer to the drawee to pay a certain sum,
either immediately or on a fixed date, for payment of goods or services received.
The drawee accepts the bill by signing it, thus converting it into a post-dated check
and a binding contract. A bill of exchange is also called a draft but, while all drafts
are negotiable instruments, only "to order" bills of exchange can be negotiated. A
bill of exchange is the most often used form of payment in local and international
trade, and has a long history- as long as that of writing.
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9. Bill of Lading
A bill of lading is a type of document that is used to acknowledge the receipt of a
shipment of goods. A transportation company or carrier typically issues this
document to a shipper. In addition to acknowledging the receipt of goods, the
document indicates the particular vessel on which the goods have been placed,
their intended destination and the terms for transporting the shipment to its final
destination. It also includes a description of the goods that are being shipped, their
weight and the other shipping details.
10. Certificate of Origin
A Certificate of Origin (CO) is an important international trade document attesting
that goods in a particular export shipment are wholly obtained, produced,
manufactured or processed in a particular country. COs also constitute a declaration
by the exporter. Virtually every country in the world considers the origin of imported
goods when determining what duty will be assessed on the goods or, in some
cases, whether the goods may be legally imported at all. The two major types of
COs are: (i). Non-Preferential COs, i.e. ordinary COs which certify that the
country of origin; and (ii). Preferential Cos which enable products to enjoy tariff
reduction or exemption.
11. Charter Party
A charter party is an agreement between two parties regarding lease of a cargo or a vessel. One party
offers to lease its vessel or cargo to another party at stipulated rate or under decided conditions. It is a
legal contract, made under the laws governing the shipping world between a cargo vessel owner and a
charterer. It includes, (i). name & tonnage of the vessel, (ii). name of the captain, (iii). name of letter to
the freight & freighter, (iv). Place & time agreed upon for loading & discharge, (v). price of the freight,
(vi). demurrage or indemnity in case of delay, and (vii). such other conditions as the parties may agree
upon.

12. Consignment Sale

Consignment sale is an arrangement in trade in which a seller or the consignor
sends goods to a buyer or consignee without getting payment for the goods then
itself. The consignee or the buyer pays the amount only when the goods are sold. It
is actually a delivery of goods not amounting to sale. The seller retains the
ownership of the goods until the payment is made in full by the buyer. The unsold
goods will be taken back after some period. It is also referred to as sale or return.
The seller is usually responsible for loss, shrinkage, or damage of its merchandise
while in the control and custody of the buyer.
13. Consular Invoice
Consular Invoice is a Commercial invoice visaed by the consul of the importing
country resident in the exporting country. It serves to exercise control over imports,
and help prevent over- and under-invoicing. A consular invoice details the contents
of a shipment, and affirms that it does not contain any illegal or questioned items.
It is prepared by a consular official working in the importing countrys consulate in
the nation of origin. The document is written in the language used by the importing
country to ensure that customs officials can read and understand it, and includes a

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seal confirming that it is official. Such documents may be required for some
imports, and can be recommended in other cases.
14. Convertibility of Currency
Or, Currency Convertibility
Currency convertibility refers to the level of difficulty that would be encountered if
an attempt was made to convert the hard currency of a given country into gold or
the currency issued by another country. There are a number of different factors
that can impact the level of currency convertibility that exists between currencies
issued by any two countries. Political, social, and environmental issues can all play a
part in determining how easy or how hard it is to exchange gold or other forms of
currency for any one currency.
15. Cross Rate
The cross rate refers to the currency exchange rate between two currencies, both
of which are not the official currencies of the country in which the exchange rate
quote is given in. This phrase is also sometimes used to refer to currency quotes
which do not involve the U.S. dollar, regardless of which country the quote is
provided in. In foreign exchange, the exchange rate of currencies being traded in a
country that does not utilize either of those currencies. For example, a trader in
Britain dealing in Mexican pesos and euros will trade them at the cross rate.
16. D/P Bills & D/A Bills
A document against payment bills (D/P bills) is an arrangement under which an
exporter instructs the presenting bank to hand over shipping and title documents
(see document of title) to the importer only if the importer fully pays the
accompanying bill of exchange or draft. Also called cash against documents.
A document against acceptance bills (D/A bills) is an arrangement in which an
exporter instructs a bank to hand over shipping and title documents (see document
of title) to an importer only if the importer accepts the accompanying bill of
exchange or draft by signing it.
17. Documentary Frauds in Foreign Trade
Documentary frauds in foreign trading occur primarily for those commodities that
are in high demand. The fraudulent seller would suggest a selling price that is
attractively lower, while relying on persuasive documents.
Documentary fraud relates to many scenarios such as forging, alteration or general
misuse of the letter of credit and/or the documents that accompany the letter of
credit i.e. bill of lading, commercial invoice, insurance certificate, certificate of
origin, inspection certificate, etc.
The common types of documentary fraud are1. Falsified documents, the cargo being non-existent,
2. Cargo is of inferior quality or quantity,
3. Same cargo is sold to two or more parties,
4. Double bills of lading issued for the same cargo.

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18. EPZ
As per World Bank-1999, an export processing zone (EPZ) is defined as a territorial
or economic enclave in which goods may be imported and manufactured and
reshipped with a reduction in duties and/or minimal intervention by custom officials.
EPZ Provides plots/factory building in custom bonded area, infrastructural facilities,
administrative facilities, fiscal & non-fiscal incentives, etc.
The main Objectives are: Promotion of foreign (FDI) & local investment,
diversification of export, development of backward & forward linkages, generation
of employment, transfer of technology, up-gradation of skill, and development of
management.
19. Euro Currency
Currency deposited by national governments or corporations in banks outside their
home market. This applies to any currency and to banks in any country. For
example, South Korean won deposited at a bank in South Africa, is considered euro
currency.
One advantage of euro currency from a bank's point of view is that it allows a bank
to operate outside the regulation of the country issuing the currency in question.
One particular advantage is that most countries do impose a reserve requirement
on foreign currency operations: a bank can therefore lend a higher proportion of its
euro currency deposits, improving its interest margin.
20. European Union
The European Union (EU) is an economic and political union of 27 member states
that are located primarily in Europe that participates in the world economy as one
economic unit and operates under one official currency, the euro. The EU's goal is
to create a barrier-free trade zone and to enhance economic wealth by creating
more efficiency within its marketplace. The EU operates through a system of
supranational independent institutions and intergovernmental negotiated decisions
by the member states. Institutions of the EU include the European Commission, the
Council of the European Union, European Council, European Central Bank, European
Parliament, etc.
21. Exchange Position
Foreign exchange position the balances of bank foreign exchange assets and
liabilities that generate the risk of obtaining additional revenues or expenditures
upon the modification of exchange rates.
The foreign exchange position shall be considered open if foreign exchange
assets in a certain foreign currency are not equal to foreign exchange liabilities in
the respective foreign currency.
The value of the open foreign exchange position represents the difference
between the amount of foreign exchange assets in a certain foreign currency and
the amount of foreign exchange liabilities in the respective currency.
The open foreign exchange position is long if the sum of foreign exchange
assets in a certain foreign currency exceeds the sum of foreign exchange liabilities
in the respective foreign currency.

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The open foreign exchange position is short if the sum of foreign exchange
liabilities in a certain foreign currency exceeds the sum of foreign exchange assets
in the respective foreign currency.
The foreign exchange position ratio represents the percentage ratio between
the value of the open foreign exchange position (recalculated in Moldovan lei) and
the value of the total regulatory capital of the bank.
22. Export Policy of Bangladesh
The Export Policy 1997-2002 has been designed to operate in the imperatives and
opportunities of the market economy with a view to maximizing export growth and
narrowing down the gap between import payment and export earnings.
The principal objectives of this policy are:
1. To achieve optimum national growth;
2. To narrow down the gap between the export earning and import payment;
3. To more attract the exportable items into international market through product
diversification and quality improvement;
4. To establish backward linkage industries and services;
5. To simplify export procedures and to rationalize and solidify export incentives;
6. To develop and expand infrastructure;
7. To develop trained human resources in the export sector;
8. To raise the quality and grading of export products;
23. Financial Derivatives
Financial derivatives are financial instruments that are linked to a specific financial
instrument or indicator or commodity, and through which specific financial risks can
be traded in financial markets in their own right. Transactions in financial
derivatives should be treated as separate transactions rather than as integral parts
of the value of underlying transactions to which they may be linked. The value of a
financial derivative derives from the price of an underlying item, such as an asset or
index. Unlike debt instruments, no principal amount is advanced to be repaid and
no investment income accrues. Financial derivatives are used for a number of
purposes including risk management, hedging, arbitrage between markets, and
speculation.
24. Floating Exchange Rate
The exchange rate in which the value of the currency is determined by the free
market. That is, a currency has a floating exchange rate when its value changes
constantly depending on the supply and demand for that currency, as well as the
amount of the currency held in foreign reserves. An advantage to a floating
exchange rate is that it tends to be more economically efficient. However, floating
exchange rates tend to be more volatile depending on the particular currency. A
currency with a floating exchange rate may undergo currency appreciation or
currency depreciation, depending on market fluctuations. A floating exchange rate
is also called a flexible exchange rate.

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25. Fixed Exchange Rate

A fixed exchange rate, which is a type of exchange rate regime where a currency's
value is fixed against the value of another single currency or to a basket of other
currencies, or to another measure of value, such as gold.
A fixed exchange rate is usually used to stabilize the value of a currency against the
currency it is pegged to. This makes trade and investments between the two
countries easier and more predictable and is especially useful for small economies in
which external trade forms a large part of their GDP.
26. Forced LIM
Normally importer pays the duty & sales tax of the imported goods after arrival at
the port. Due to shortage of fund or some other reasons, sometimes importer
approaches the L/C opening bank to assist him for retirement of the imported
goods. In some cases importer do not come forward to retire the goods. In these
cases the bank themselves arrange to retire the goods by pledge in Godown under
banks lock & key. This type of payment is called forced LIM. This is a temporary
arrangement for a maximum period of 90 days. Within this time limit, the importer
borrower will release the goods at a time or gradually after making payment to the
bank.
27. Foreign Correspondents
Foreign Correspondent is a financial organization such as a securities firm or a bank
that regularly performs services for another firm that does not have the requisite
facilities or the access to perform the services directly. For example, a member of a
securities exchange may execute a trade for a nonmember firm.
28. Foreign Exchange Market
The foreign exchange (forex/FX) market is a form of exchange for the global
decentralized trading of international currencies. Financial centers around the world
function as anchors of trading between a wide range of different types of buyers
and sellers around the clock. It assists international trade and investment by
enabling currency conversion.
Some unique features are as below:
- Very large number of participant every daily
- World range participants
- Open from Sunday 22:00 GMT to Friday 20:00 GMT, except weekends
- Exchange rates are affected by a number of factors
29. Forward Exchange Contract
Forward exchange contract is a special type of foreign currency transaction.
Forward contracts are agreements between two parties to exchange one currency
for another on a specified future date, usually longer than two business days that
the rate is agreed today. These contracts always take place on a date after the date
that the spot contract settles, and are used to protect the buyer from fluctuations in
currency prices.

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A Forward Exchange Contract offers protection against unfavorable changes in

foreign currency values, but no opportunity to benefit if the currency moves
favorably.
30. Generalized System of Preference (GSP)
Tariff preferences for developing countries, by which developed countries let certain
manufactured and semi-manufactured imports from developing countries enter at
free or lower tariffs than the same products from developed countries. The purpose
of the program is to foster economic growth in developing countries by increasing
their export markets.
Bangladesh, being one of the Least developing Countries (LDCs), is yet to get
Generalised System of Preferences (GSP) facilities for access the US market for its
garments products, while it enjoys GSP facilities in the European Union (EU)
countries.
31. Gold Standard
A monetary system in which a country's government allows its currency unit to be
freely converted into fixed amounts of gold and vice versa. The exchange rate
under the gold standard monetary system is determined by the economic difference
for an ounce of gold between two currencies.
At the turn of the 20th century, many major trading nations used the gold standard
to adjust their monetary supply. However, it was later abandoned in favor of
Keynesian theories.
Under the gold standard system, all participating currencies were convertible based
on its gold value. The use of the gold standard would mark the first use of
formalized exchange rates in history.
32. Inco-terms
Inco-terms, short for "International Commercial Terms," are used to make
international trade easier by helping traders in different countries understand one
another that was published by the International Chamber of Commerce (ICC) are
commonly used in both international and domestic trade contracts. The last revision
(1999) is named 'INCOTERMS 2000'. In brief these terms are: Cost & Freight, Costinsurance-Freight, Delivered at frontier, delivered duty paid, ex quay, ex ship, ex
works, free alongside ship, free on board, free on board airport, free on rail/free on
truck, free carrier, free carriage paid to and free carriage paid to and insurance.
33. Interest Arbitrage
Interest arbitrage refers to transactions in two or more financial centers in order to
make an immediate profit by exploiting differences in interest rates.
Interest rates vary between countries based on their economic health, which
creates an opportunity for investors. By purchasing a foreign currency and
depositing it abroad, investors can effectively capitalize on the difference in interest
rates in some cases. While these bets are no longer as popular as they used to be,
they are still widely used in the financial markets. For example, performing a forex
swap involving simultaneously buying a foreign currency value spot and selling it
forward, and then investing the purchased currency.
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34. International Development Association (IDA)

The IDA, a member of the World Bank Group was formed in 1960, headquarter is in
Washington, D.C. The association shares the World Bank's mission of reducing
poverty and aims to provide affordable development financing to countries.
The IDA's stated aim is to assist the poorest nations in growing more quickly,
equitably, and sustainably to reduce poverty. The IDA is the single largest provider
of funds to economic and human development projects in the world's poorest
nations. The IDA has issued a total $238 billion USD in loans and grants since its
launch in 1960.
The IDA has 172 member countries which pay contributions every three years as
replenishments of its capital.
35. International Monetary Fund (IMF)
The International Monetary Fund (IMF), headquartered in Washington, D.C., is a
global organization made up of 185 member countries, founded in 1944 with the
purpose to oversee global financial health and provide assistance when needed to
its members. The IMF plays major roles in the global monetary system. It states the
goals as- To promote international monetary cooperation, exchange stability, and orderly
exchange arrangements;
- To foster economic growth and high levels of employment; and
- To provide temporary financial assistance to countries to help ease balance of
payments adjustment.

36. Islamic Development Bank (IDB)

The Islamic Development Bank (IDB) is a multilateral development financing
institution located in Jeddah, Saudi Arabia was founded in 1973 by the Finance
Ministers at the first Organization of the Islamic Conference. The present
membership of the Bank consists of 56 countries. The former president is
Mohammed Bin Faisal
On the 22 May 2013, IDB tripled its authorized capital to $150 billion to better serve
Muslims in member and non-member countries. On the basis of paid-up capital,
major shareholders include: Saudi Arabia, Libya, Iran, Egypt, Turkey, United Arab
Emirates, Kuwait, Pakistan, Algeria, and Indonesia.
37. LIBOR
LIBOR is an acronym for London InterBank Offered Rate. This rate is that which is
charged by London banks, and is then published and used as the benchmark for
bank rates all over the world. LIBOR is compiled by the British Bankers Association
(BBA).
This market allows banks with liquidity requirements to borrow quickly from other
banks with surpluses, enabling banks to avoid holding excessively large amounts of
their asset base as liquid assets. The LIBOR is officially fixed once a day by a small
group of large London banks, but the rate changes throughout the day.
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38. LIM (Loan against Imported Merchandise)

This type of finance is offered to the importer to finance their needs for meeting the
cost including freight, insurance, and customs and excise duty payable on the
imported merchandise. The bank mostly pledges the imported goods. The
merchandise is released for the use of the importer upon repayment of the banks
finance and charges either fully or partially, on production of the Delivery Order
issued in favor of the borrower. LIM may be created in two ways:
i) LIM on importer's request
ii) Forced LIM. LIM is post shipment import finance.
39. Long & Short Exchange Position
A long position is taken on a FOREX currency when the traders purchase a
particular currency in hopes of selling it at a higher price. If a trader perceives that
the value of a given currency is going to increase over an extended time, this is the
perfect opportunity to take a long position on that currency.
A short position is taken when an investor projects the currency value be going
down, and sells it at its present value in the hope that the value continues to drop,
then purchase it again at a lower price. This strategy is best if the trader foresees a
drop in the currency price, and wants to profit or prevent loss.
40. Money Laundering
The process of creating the appearance that large amounts of money obtained from
serious crimes. Criminals want their illegal funds laundered because they can then
move their money through society freely, without fear that the funds will be traced
to their criminal deeds. It usually consists of three steps:
i. Placement- is the fund depositing or conversion into negotiable instruments.
ii. Layering- is wire transfer through a series of accounts in attempt to hide the
true origin of funds.
iii. Integration- involves the movement of layered funds, which are no longer
traceable to their criminal origin.
41. Nostro and Vostro Accounts
Both Nostro and Vostro account are normally used in the context of foreign
exchange transactions done by the banks or during currency settlement.
A Nostro Account is an account denominated in a foreign currency established
through your local bank at a bank in the respective country of the currency desired.
The terms "nostro" and "vostro" are derived from Latin terms meaning "ours" and
"yours" respectively. A nostro account is our account in a different country and a
vostro account is a foreigner's account in our country. A nostro account is always in
foreign Currency while a vostro account is in Home currency.
42. Off-shore Banking
An offshore banking is a banking system located outside the country of residence of
the depositor, typically in a low tax jurisdiction (or tax haven) that provides financial
and legal advantages.
An offshore bank must be specifically licensed as such under appropriate offshore
banking legislation. The Offshore banking may be is tax free, and there are no
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foreign exchange regulations attached to the accounts. Most importantly, all

account information is confidential and protected by privacy laws.
43. Open Position (Foreign Exchange)
An open position can exist following a buy (long) position, or a sell (short) position.
In either case, the position will remain open until an opposing trade has taken
place. The foreign exchange position shall be considered open if foreign exchange
assets in a certain foreign currency are not equal to foreign exchange liabilities in
the respective foreign currency.
The open foreign exchange position is long if the sum of foreign exchange assets in
a certain foreign currency exceeds the sum of foreign exchange liabilities; contrarily
it is short if the sum of foreign exchange liabilities in a certain foreign currency
exceeds the sum of foreign exchange assets in the respective foreign currency.
44. Option Forward Contract
A forward contract or simply a forward is a non-standardized contract between
two parties to buy or sell an asset at a specified future time at a price agreed upon
today. This is in contrast to a spot contract, which is an agreement to buy or sell an
asset today. The party agreeing to buy the underlying asset in the future assumes a
long position, and the party agreeing to sell the asset in the future assumes a short
position. The price agreed upon is called the delivery price, which is equal to the
forward price at the time the contract is entered into.
45. Packing Credit
PACKING CREDIT is any loan or advance granted or any other credit provided by a
bank to an exporter for financing the purchase, processing, manufacturing or
packing of goods prior to shipment, on the basis of letter of credit opened in his
favor or in favor of some other person, by an overseas buyer or a confirmed and
irrevocable order for the export of goods from the producing country or any other
evidence of an order for export from that country having been placed on the
exporter or some other person, unless lodgment of export orders or letter of credit
with the bank has been waived.
46. Pre-shipment Inspection
Pre-shipment inspection is control quality, weight, quantity, sizes, specification of
goods, cargo, product before loading and during loading for exporting.
Pre-shipment inspection is offered to exporters and importers and comprises a
detailed inspection of equipment of materials after manufacture, but prior to
shipment. A Certificate of inspection can be provided against a Letter of Credit and
authorized by a Chamber of Commerce.
For export to countries with import certification schemes, the local company control
pre-shipment inspection is a necessary step to receive an import-export certificate
and payment document of banking for the shipment.
47. Received for Shipment Bill of Lading
Received for Shipment Bill of Lading refers to a bill of lading which serves only as a
receipt for goods accepted for shipment on a named ship (vessel), and does not
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certify their placement aboard the vessel. Used where the goods arrive at the port
of departure before the vessel does, this type of bill of lading is not considered a
complete B/L and is replaced by a shipped on board bill of lading when the goods
do go onboard.
48. Red Clause Letter of Credit
A letter of credit that carries a provision (traditionally written or typed in red ink)
which allows a seller to draw up to a fixed sum from the advising or paying-bank, in
advance of the shipment or before presenting the prescribed documents. It is
normally used only where the buyer and seller have close working relationship
because, in effect, the buyer is extending an unsecured loan to the seller (and
bears the financial risk and the currency risk). Rare nowadays, the red clause L/Cs
were once popular in fur trade with China and wool trade with Australia.
49. Revolving Letter of Credit
Single L/C that covers multiple-shipments over a long period. Instead of arranging a
new L/C for each separate shipment, the buyer establishes a L/C that revolves
either in value (a fixed amount is available which is replenished when exhausted) or
in time (an amount is available in fixed installments over a period such as week,
month, or year). L/Cs revolving in time are of two types: in the cumulative type, the
sum unutilized in a period is carried over to be utilized in the next period; whereas
in the non-cumulative type, it is not carried over.
50. Special Drawing Rights
Special Drawing Rights (SDR), are often referred to as the IMF's currency founded
in 1969. Although that is useful shorthand, the SDR is not, in fact, a currency, but
rather the IMF's unit of account. It is a measure of a country's reserve assets in the
international monetary system. The value of an SDR is defined as the value of a
fixed amount of yen, dollars, pounds and euros, expressed in dollars at the current
exchange rate. The composition of the basket is altered every five years to reflect
changes in the importance of different currencies in the world's trading system.
51. SWAP
Swap refers to the exchange of one security for another to change the maturity
(bonds), quality of issues (stocks or bonds), or because investment objectives have
changed. The most common type is an interest rate swap, in which one party
agrees to pay a fixed interest rate in return for receiving a adjustable rate from
another party. Other types of swap are: Currency swap, Debt swap, Debt to equity
swap, and Debt to debt swap.
52. SWIFT
The Society for the Worldwide Interbank Financial Telecommunication (SWIFT) is a
co-operative organization, founded in Brussels, 1973, operates in more than 200
countries is dedicated to the promotion and development of standardized global
interactivity for financial transactions. SWIFT's original mandate was to establish a
global communications link for data processing and a common language for
international financial transactions. The Society operates a messaging service for
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financial messages, such as letters of credit, payments, and securities transactions,

between member banks worldwide. SWIFT's essential function is to deliver these
messages quickly and securely- both of which are prime considerations for financial
matters.
53. Transport Documents
When items are transported either domestically or internationally the delivery must
be accompanied by the relevant documentation. The amount of documentation
varies depending one country to another country. As far as interstate transportation
of goods, there are some documents that are of greatest importance; the bill of
lading, sea waybill, air waybill, road waybill, inland waterways B/L, courier delivery
slip, postal delivery slip, etc.
54. Value Date
A Value Date is the date on which counterparties to a financial transaction agree to
settle their respective obligations by exchanging payments and ownership rights.
The typical Value Date for a Spot forex trade is two business days. A Spot Trade in
Forex is a purchase or sale of a foreign currency in the Spot Market at the Spot
Rate for immediate delivery or delivery "on the spot", as opposed to a date in the
future. Spot contracts are typically cleared and settled electronically. A Spot Trade
in foreign currencies is typically transacted with a "2-day value date", an
international convention due to time zone differences and the need for banks to
communicate cross-border to perform the transaction.
55. World Bank
The World Bank was founded in 1944 in Bretton Woods Conference on Washington
DC, USA. The bank's mission soon expanded to focus on the global challenge of
poverty and the ways in which the bank could help foster permanent change in
poor countries. Through low-interest loans and interest-free credits and grants, the
World Bank invests in education, health, infrastructure agriculture and private
sector development. It consists of five organizations:
1. The International Bank for Reconstruction and Development (IBRD)
2. The International Development Association (IDA)
3. The International Finance Corporation (IFC)
4. The Multilateral Investment Guarantee Agency (MIGA)
The International Centre for Settlement of Investment Disputes (ICSID)
56. World Trade Organization
The World Trade Organization (WTO) is the only global international organization
dealing with the rules of trade between nations. At its heart are the WTO
agreements, negotiated and signed by the bulk of the worlds trading nations and
ratified in their parliaments. The goal is to help producers of goods and services,
exporters, and importers conduct their business.
The WTO is run by its member governments. All major decisions are made by the
membership as a whole, either by ministers (who usually meet at least once every
two years) or by their ambassadors or delegates (who meet regularly in Geneva).
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57. 0pening Bank, Advising Bank, Beneficiary Bank, Negotiating Bank,

Reimbursing, Confirming Bank
Opener/ Buyer/Importer:
The person who opens the L/C is known as opener/ buyer/importer of the L/C. The
buyer and the seller conclude a sales contract providing for payment by
documentary credit.
0pening Bank:
The Bank issuing the L/C in favor of exporter is known as opening Bank. The
opening bank opens L/C on request of importer according to application of the
importer.
Advising Bank:
The Bank through L/C is advised their agent (correspondent Bank) abroad. The
duty of the advising Bank is to authenticate the message so that is to the seller can
act on it without any fear of forgery etc.
Beneficiary:
Seller and exporter in whose favor the L/C are opened. The beneficiary is normally
the seller of good who receive payment under documentary credit. If has compiled
with terms and conditions thereof.
Negotiating Bank:
The Bank that is authorized to handle (purchase) the documents under the L/C in
the exporting country is known as negotiating Bank. L/C will stipulate either a
notified bank to negotiate (restricted L/C) or any bank can negotiate in the sellers
country (unrestricted L/C).
Reimbursing Bank:
The Bank that is (by the L/C issuing Bank) to effect reimbursement is known as
reimbursing bank. Reimbursing Bank authorized to honor the reimbursement claims
in settlement of negotiation/ accepting/ payments lodged with its by the paying/
negotiating/ accepting Bank.
Confirming Bank:
A Confirming Bank is one which adds the guarantee to the credit opened by another
bank. Therese undertaking the responsibility of payment/ negotiating/ acceptance
under the credit in addition to that of the issuing Bank. A confirming Bank normally
does so it requested by the issuing Bank.

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