2023

TRADE FINANCE &

FOREIGN
EXCHANGE (TFFE)
AIBB
PREPARED BY
MD SAIDUL ALAM RAJAN
EXECUTIVE OFFICER
 Trade Finance and Foreign Exchange (TFFE)
Full Marks: 100

Module A: International Trade and Foreign Exchange-Overview

 Concepts of International Trade and Foreign Exchange, Domestic and International Trade, Recording of
International Trade and Foreign Exchange Transactions-components, BOT and BOP, Currency
Convertibility, Foreign Exchange Reserves, International Banking, Foreign Exchange and Trade
Services.

Module B: International Trade Payment Methods

 Sales / Purchase Contract; Different Forms of Trade Payment Methods- Cash in Advance; Open
Account; Documentary Collection- Operational Procedures, Documents Against Acceptance and
Documents Against Payment; Documentary Credit-Procedures and Parties involved, Settlement
Procedures, Different Types of Documentary Credits, Presentation and Examination of Documents and
Negotiation, Lodgment and Retirement of Documents under Documentary Credit; Open Account
Payment Secured by International Factoring, Bank Guarantee or Standby Letter of Credit.

Module C: Documents in Trade Services

 Different Types of Documents used in Trade services- Commercial Invoice; Transport Document;
Insurance Document; bill of exchange; Commercial Documents and Financial Documents; and Other
Documents.

Module D: Regulatory Framework

 Domestic Regulatory Framework for International Trade and Foreign Exchanges-Foreign Exchange
Regulation Act 1947; Export and Import Policies of Bangladesh; Bangladesh Bank Guidelines on
Foreign Exchange Transactions.

 International Regulations for Trade Services-Uniform Customs and Practice for Documentary Credits
(UCPDC); Uniform Rules for Bank to Bank Reimbursement (URR) under Documentary Credit;
International Standard Banking Practices (ISBP); Uniform Rules for Collection (URC); International
Commercial Terms (Inco terms); International Standby Practices (ISP); Uniform Rules for Demand
Guarantee (URDG); The General Rules for International Factoring (GRIF).

Module E: International Trade Finance

 Export Finance- Back to Back L/C, Packing Credit, Export Development Fund (EDF)-Purchasing
Documents, Supply Chain Finance-International Factoring, Loan against Imported Merchandise (LIM),
Loan against Trust Receipt (LTR), International Bank Guarantees, Trade Financing and Offshore
Banking-UPAS.

Module F: Foreign Remittance, Foreign Currency Accounts, and Exchange Rate

 Foreign Remittance-Commercial Remittance, Private Remittance-Foreign Currency Accounts- Opening

and Operational Procedures of Private Foreign Currency Accounts, Non-Resident Foreign Currency
Deposit Accounts (NFCD), Resident Foreign Currency Deposit Accounts (RFCD); Exchange Rate
relevant for trade services.
 Module G: Malpractices in Tarde Services

 Irregularities and fraudulent activities associated with trade payment, trade finance, Sanctions, Trade-
Based Money Laundering, Illicit Financial Flows, and Illegal Remittance Flows.

References:

1. Ali, Syed Ashraf: Foreign Exchange and Financing and Risk Management, 2 nd Edition, Mowla
Brothers (Dhaka, Bangladesh).
2. Andly, K. K. : Foreign Exchange.
3. Awasthi, G. D. Trade Payments (Academy of Business Studies, Delhi, India).
4. Keskamat. V. V. : Foreign Exchange An Introduction.
5. Lall, G. S. Finance of Foreign Trade and Foreign Exchange (HPJ Kappor, New Delhi.).
6. Verghese, S. K. : Foreign Exchange and Financing of Foreign Trade.
7. Watson, A. J. W. : Finance of International Trade (Institute of Bankers, London).
8. Whiting, D. P. : Finance of International Trade (McDonald & Evans).
9. Wheble B. S. : Uniform Rules for Collection (Chartered Institute of Bankers, London).
10. D P Whiting, Finance of Foreign Trade and Foreign Exchange.
11. O.P. Agarwal, B.K. Chaudhuri, Foreign Trade and Foreign Exchange.
12. Hardback ,Wiley Finance,David F. Derosa, Foreign Exchange Operations.
13. Kwai Wing Luk, International Trade Finance.
14. Agarwal, Foreign Trade and Foreign Exchange.

2
 ABSTRACT
Concepts of International Trade and Foreign
Exchange, Trade Theories and Trade Barriers,
Balance of Payments and Currency Convertibility,
International Trade and International Banking

INTERNATIONAL
TRADE AND
AIBB
Associate of the Institute Of Bankers, Bangladesh

FOREIGN
EXCHANGE
Chapter One
Chapter 1: International Trade and Foreign Exchange

1. What is international Trade? Who are the core parties in international trade?
Answer: International trade is the trade between two countries where traders represent their
respective countries. It is the system by which countries exchange goods and services. International
trade occurs because there are things that are produced in a particular country that individuals,
businesses and governments in other countries want to buy. Countries trade with each other to
obtain things that are better quality, less expensive or simply different from goods and services
produced at home.
Importers and exporters are the core parties in international trade. In terms of international
trade, the responsibility of exporter (seller) is to send/deliver the goods and that of importer is to
remit/make payments.

2. How BOP and BOT are different?

Answer:
BOP: Balance of Payment (BOP) is a statistical statement designed to provide, for a
specific period of time. It is a systematic record of a country’s economic transactions with
the rest of the world.
BOT: The Balance of Trade (BOT) is defined as the difference between the value of exports
and the value of imports of a country. The figure that is derived shows how economically
stable a nation is.

TRADE FINANCE AND FOREIGN EXCHANGE 1

Chapter 1: International Trade and Foreign Exchange

3. Can BOT of a country be positive and BOP of the same country is negative?
Answer: Yes, it is possible for a country to have a positive Balance of Trade (BOT) and a negative
Balance of Payments (BOP).
A country can have a positive balance of trade (a trade surplus) and a negative balance of
payments (a deficit) if it is exporting more goods than it is importing, but it is also losing financial
capital or making financial transfers.
4. What are the components of current account?
Answer: The components of current account includes: (a) Goods and Services (b) Primary Income
and (c) Secondary Income.
 Goods and Services: General merchandise, Non-monetary gold, manufacturing services on
physical inputs, Maintenance and Repair services, Transportation, travel, Construction
services, Insurance services, Telecommunications etc.
 Primary Income:
 Income earned from the labor is called compensation
 Income earned from the capital is called investment income
 Secondary Income:
 Food and commodity
 Technical assistance
 Remittances
 Other gifts and donations

5. Define the components of capital account.

Answer: The components of capital account includes:
 Non-produced, nonfinancial assets between residents and non-residents
 Capital transfers receivable and payable between residents and non-residents.

6. What are the key functional areas of International Banking?

Answer: International banking includes cross-border business in any currency and local business
in foreign currencies. The functional area of International Banking is trade payment, trade
financing and foreign exchange transactions. From a country perspective, any cross-border
transactions even in local currencies might be international banking.

International
Banking

Foreign Off-shore
Trade Payment Trade Finance
Exchange Banking

TRADE FINANCE AND FOREIGN EXCHANGE 2

Chapter 1: International Trade and Foreign Exchange

7. What is the role of banks in international trade?

Answer: The following roles are played by the bank in international banking:
 Settle the international trade transaction
 Manage the associated risk
 Provide financing assistance
 Manage political, economic, and social risk
 Act as an agent of exporter to collect payment from importer
 Provide finance to both importer and exporter
 Offer some foreign exchange and commodity derivatives
8. How can you explain country’s positive Balance of Trade (BOT) position in a
given period and its impact to the economy?
Answer: The Balance of Trade (BOT) is defined as the difference between the value of exports
and the value of imports of a country. A trade surplus occurs when the value of a country's exports
exceeds the value of its imports. In other words, the country is selling more to other countries than
it is buying from them.
A trade surplus is often seen as a sign of economic success, as it indicates that the country
is producing goods and services that are in high demand internationally. A trade surplus can be a
result of a country having a competitive advantage in the production and export of certain goods,
or it can be the result of a country's currency being relatively undervalued, making its exports
cheaper for foreign buyers.
9. How can you explain country’s negative Balance of Trade (BOT) position in a
given period and its impact to the economy?
Answer: An unfavorable balance of trade, also known as a trade deficit, occurs when a country
imports more goods than it exports. This implies that the country is purchasing more from other
countries than it's selling to them. It can be a cause for concern if it persists over a long period of
time.
A trade deficit can be the result of a country having a comparative disadvantage in the
production of certain goods, or it can be the result of a country's currency being relatively
overvalued, making its imports cheaper and its exports more expensive. It can also indicate that
the country is not producing enough goods to meet domestic demand or that domestic goods are
not competitive on the international market.
10.Why currency convertibility is important for an economy? What disadvantage a
country may face due to poor currency convertibility?
Answer: Currency convertibility is the ease with which a country's currency can be converted into
another currency. Currency convertibility refers to how liquid a nation's currency is in terms of
exchanging with other global currencies. A convertible currency is a highly liquid instrument as
compared with currencies that are tightly controlled by a government's central bank or other
regulating authority.
When a country has poor currency convertibility, meaning it is difficult to swap it for another
currency or store of value, it poses a risk and barrier to trade with foreign countries who have no
need for the domestic currency. Non-convertible and blocked currencies (e.g. Cuban Pesos or
North Korean Won) are not easily exchanged for other monies and are only used for domestic
exchange with their respective borders.

TRADE FINANCE AND FOREIGN EXCHANGE 3

Chapter 1: International Trade and Foreign Exchange

11.When does this international trade (export or import) happen? What is the gain
on-the part of a country in international trade? Who are the losers and to what
extent?
Answer: International trade is referred to as the exchange or trade of goods and services between
different nations. International trade occurs because there are things that are produced in a
particular country that individuals, businesses and governments in other countries want to buy.
Countries trade with each other to obtain things that are better quality, less expensive or simply
different from goods and services produced at home.

A country gains from net exports. International trade helps to increase the GDP of a country
and also reduces the cost of products for the citizens of the countries receiving it. International
trade helps certain countries to survive and sustain. International trade allows countries to access
goods and services they may not be able to produce themselves, leading to a greater variety of
available products and potentially lower prices for consumers. It can also lead to increased
economic growth and job creation through the export of domestic goods and services.
Additionally, international trade can promote the exchange of ideas, cultures, and technologies,
leading to increased global understanding and cooperation.

Gains from trade are often realized due to

international trade supporting extra production
and consumption. In economic contexts, gains
from trade always include the benefit of
surplus.

For Example if the world Price of the product

A increases from price B to price A, then
domestic manufacturers will increase the
export of goods for that reason trade will
increase the area D will represent the gains that
a domestic producer can have in a certain time.

If the world For Example if the world Price of the product A decreases from price B to price C, then
domestic manufacturers will increase the import of goods for that reason trade will increase the area E
will represent the loss that a domestic producer can have in a certain time. However, trade will improve
the overall economic situation of the country because the gains to consumers will balance the losses to
producers.
Therefore, it is to be recognized that whether a country will engage in export or import depends on the
difference between domestic market price (DMP) and world market price (WMP): If
WMP > DMP = Country will export
WMP < DMP = Country will import

TRADE FINANCE AND FOREIGN EXCHANGE 4

 ABSTRACT
Domestic Regulatory Framework, Foreign
Exchange Regulation (Amendment 2015) Act
1947, Guidelines for Foreign Exchange
Transactions, 2018, Import Policy Order 2021-24,

DOMESTIC
Export Policy 2018-2021, Customs Act 2014 and
Pre-shipment Inspection Rules 2002

REGULATORY
FRAMEWORK FOR AIBB
Associate of the Institute Of Bankers, Bangladesh
INTERNATIONAL
TARDE AND FOREIGN
EXCHANGES
Chapter Two
Chapter 2: Domestic Regulatory Framework for International Tarde and Foreign Exchanges

1. What are the domestic regulations followed for international trade facilitation?
Answer: In performing international trade and foreign exchange operations, banks are required to
follow both a set of domestic regulations and international rules/guidelines. The major relevant domestic
regulations followed in performing trade services activities in the country are:
 Foreign Exchange Regulations Act 1947 (with latest amendment)
 Bangladesh Bank Guidelines on Foreign Exchange Transactions
 Export Policy 2018-2021
 Import Policy Order 2021-24 etc.
2. What is the purpose of FERA 1947?
Answer: FERA, which stands for the Foreign Exchange Regulation Act, was enacted in India in
1947. It is an Act to regulate certain payments, dealings in foreign exchange and securities and the
import and export of currency and precious metal. The purpose of FERA was to regulate and
control certain aspects of foreign exchange transactions in the country. Here are the main
objectives and purposes of FERA 1947:
 Control of Foreign Exchange
 Preservation of Foreign Exchange Reserves
 Prevention of Capital Flight
 Regulation of Transactions
 Control over Foreign Exchange Dealers

3. Point out some key features in GFET?

Answer: Bangladesh Bank compiled all the FE circulars in the guideline titled Guidelines for
Foreign Exchange Transactions (GFET). The first volume of GEFT offers the directives regarding
the procedural modalities and the second one contains the details of reporting of FE transactions.
Here are the following key features of GEFT:
 Licensing criteria and basic instructions to the ADs and Money
 Inward and outward remittance
 Export and Import
 Foreign Remittance and Foreign Currency Account
 Borrowings, Investment, Loans & Advances
 Miscellaneous
4. What is the rationale behind FERA & GFET?
Answer: The Foreign Exchange Regulations Act (FERA) of 1947, and subsequently the
Bangladesh Bank Guidelines on Foreign Exchange Transactions, serve as regulatory frameworks
to govern foreign exchange transactions in their respective jurisdictions. Both FERA 1947 and the
Bangladesh Bank Guidelines on Foreign Exchange Transactions are regulatory tools designed to
safeguard the economic interests of their respective countries. They aim to strike a balance between
promoting international trade, conserving foreign exchange reserves, and preventing unauthorized
and illegal financial activities. Over time, these regulations may evolve to adapt to changes in the
global economic landscape.

TRADE FINANCE AND FOREIGN EXCHANGE 1

Chapter 2: Domestic Regulatory Framework for International Tarde and Foreign Exchanges

5. Explain some key regulations/rules for trade facilitation in case of importation

and exportation of Bangladesh as per GFET.
Answer:
Trade Facilitation in case of Importation:
 The ADs have to make sure that they only do business with established clients who
are based in Bangladesh.
 Approval of Bangladesh Bank not required for extending validity of LCAF related
to import of capital machinery under long term supplier's/buyer's credit upon
approval of BIDA.
 Revalidation of LCAF will not be required for remittances against import out of
funds held in foreign currency accounts of importers maintained under general or
special authorization from Bangladesh Bank
 The ADs will have to get confidential report on the exporters in all cases where the
amount of LC/contract exceeds USD 10,000 (Ten Thousand) against pro-forma
invoices issued directly by foreign suppliers and USD 20,000 (Twenty Thousand)
against indents issued by local agents of the foreign suppliers.
 Authorized Dealers (ADs) have the authority to allow remittances even in cases
where the documents presented for the remittance are considered discrepant on the
basis of related LCAF, certified copy of the customs bill of entry and associated
bills.
 If an importer pays for goods upfront, they must submit the customs bill of entry
within four months from the date of the remittance.
 If the import is done on credit, the timeline for submitting the customs bill of entry
starts from the date of acceptance of the import documents, not from the date of the
actual remittance.
 ADs may establish letter of credit in foreign currency favoring local contractor to
implement work order issued by govt. authorities under international tender
Trade Facilitation in case of Exportation:
 All exports must be declared on the EXP Form. EXP procedure will not be
applicable for export undertaken in non-physical form.
 Before issuance of EXP Forms, When exporting goods only as specified in a
contract ADs must be satisfied with the overseas buyers' and consignees'
legitimacy, qualifications, etc., as needed.
 The exporters need to submit export documents like EXP to the ADs so that they
can report to BB within 14 days from the date of shipment.
 ADs have been granted general authorization to export raw jute and jute goods for
a maximum of 360 (three hundred sixty) days.
 When receiving advance remittances against exports, AD must get a declaration
from the beneficiary on the "Advance Receipt Voucher" attesting to the remittance's
purpose and submit it to the "Online ARV Reporting Module."
 An insurance claim must be filed by ADs as soon as the loss is discovered if
shipments from Bangladesh are lost in transit and the payment has not yet been
made through direct remittance or LC.

TRADE FINANCE AND FOREIGN EXCHANGE 2

Chapter 2: Domestic Regulatory Framework for International Tarde and Foreign Exchanges

6. What are the key features of the Import Policy Order in force?
Answer: The features of an Import Policy Order can vary widely by country, and they are subject
to change. Here are some common features found in Import Policy Orders:
 Facilitating the easy availability of commodities to consumers at reasonable prices by
lowering obstacles to international trade.
 The major objectives are liberalization of imports in line with WTO and globalization
 Simplification of imports for export-oriented industries
 Improving quality of services to the importers
 In contains general rules for imports, fees related to imports, miscellaneous rules, and
general rules for industrial imports,
 It facilitate the provisions related to the importers of government sector, import trade
control committee, and recognized list of chamber of commerce and industry.
 In Import Policy Order, twenty six commodities have been kept under the restricted list.
 Even in the absence of an IRC, the import policy permits the opening of an LC for the
import of capital machinery.

7. Point out key aspects of the export policy of Bangladesh?

Answer:
 To create a robust trade policy that complies with WTO regulations and adapts to the
changing global trade landscape.
 To engage in regional trade alliances and to uphold positive trade ties with South Asia's
fastest-growing nations.
 To fulfil the target of achieving export earnings of US$ 60 billion by the year 2021.
 To increase the earnings of every sector in the export industry and to create employment
opportunities.
 To ensure a business friendly environment and increase competitiveness in the market.
 To diversify the export products and improve the balance of trade.
 To accelerate the export industry by proper utilization of e-commerce and e-governance.
 To produce quality export products and to update the testing facilities to the global standard
 To increase the use of latest and environment-friendly technology.
 To facilitate more women entrepreneurs in trade and export-oriented industry.
 To build the necessary infrastructure and regulatory framework to attract more FDIs along
with domestic investment.

TRADE FINANCE AND FOREIGN EXCHANGE 3

Chapter 2: Domestic Regulatory Framework for International Tarde and Foreign Exchanges

8. What risk mitigation measures should a bank take into account for import
without LC?
Answer: When a bank facilitates imports without a Letter of Credit (LC), it introduces additional
risks compared to LC-based transactions. Here are some risk mitigation measures that a bank
should consider when handling import transactions without an LC:

 Credit Risk Assessment: Conduct a thorough credit risk assessment of the importer to
ensure their financial stability and ability to fulfill payment obligations.
 Collateral or Guarantees: Request collateral or guarantees from the importer to secure the
transaction.
 Payment Terms: Negotiate favorable payment terms with the importer.
 Insurance: Encourage or require the importer to obtain trade credit insurance to cover the
risk of non-payment or default.
 Legal and Regulatory Compliance: Ensure that the import transaction complies with all
relevant legal and regulatory requirements.
 Transaction Monitoring: Implement robust monitoring mechanisms to track the progress
of the import transaction and identify any potential issues early on.
 Foreign Exchange Risk Management: Implement measures to manage foreign exchange
rate risks, especially if the transaction involves multiple currencies.
 Due Diligence on Suppliers: Conduct due diligence on the overseas suppliers to ensure
their reliability and capability to deliver goods as per the agreement.
 Documentary Collections: Providing an additional layer of security in case of documentary
collections.
 Monitoring Economic and Political Conditions: Stay informed about the economic and
political conditions in the importer's country to anticipate any potential risks that may
impact the transaction.

It's important for banks to tailor these risk mitigation measures based on the specific circumstances
of each import transaction and the parties involved. Additionally, clear communication and
documentation are crucial to managing risks effectively in import transactions without LCs.

TRADE FINANCE AND FOREIGN EXCHANGE 4

Chapter 2: Domestic Regulatory Framework for International Tarde and Foreign Exchanges

9. What are the operational procedures of re-exportation of readymade garments

returned due to defects?
Answer:
 Exporter/Applicant accesses to BEZA OSS website and fills in the application form and
submits it with required documents online.
 BEZA official will endorse supporting documents and issues Export Permit for proper
documents as well as make it available online for clients to obtain.
 Exporter/C&F Agent will submit the signed Export permit hardcopy with all other required
documents to customs office in Export zone.
 The Customs official gives the gate pass to pass out the cargo after verifies the submitted
documents for loading into container.
 Exporter/ C&F Agent submits the export declaration (Bill of Export/Shipping Bill) and
other required documents to the Customs Authority through ASYCUDA World system.
 When arriving the Port, the driver shows the gate pass with other supporting documents to
the Port Authority which verifies by the customs officials before the cargo allows to be
loaded into a vessel/aircraft.
 Shipping Agent issues Export B/L after the cargo is loaded into a vessel/aircraft.
 Export general Manifest (EGM) is submitted through ASYCUDA World system after the
Export B/L is confirmed and the cargo is loaded into vessel/aircraft at the
Port/Airport/Boarder.
10.What are the operational procedures of returning of defected fabrics and
temporary export for re-import?
Answer:
 Importer/ the nominated person submits an application for Import Permit with supporting
documents to BEZA-OSS online website.
 BEZA official will endorse supporting documents and issues Import Permit for proper
documents as well as make it available online for clients to obtain.
 Shipping Agent submits IGM (Import General Manifest) to the Customs Authority via
ASYCUDA World system.
 After the cargo arrives the importer/ the designated C&F Agent submits Bill of Entry with
the supporting documents via ASYCUDA World system.
 Bill of Entry should be prepared by the specific format, which is SAD (Single
Administrative Document).
 When the port customs officer determines that all of the submitted paperwork is complete,
he or she approves and returns the signed Bill of Entry to the importer or C&F agent. In
the port, customs valuation is done concurrently (even if it rates zero). If necessary, a
physical inspection may be conducted by the Customs Authority.
 The importer/C&F Agent submits Import Permit with other necessary documents to
Customs office in the EZ.
 Customs office issues the gate pass for correct documents.
 The driver/staff in an industrial unit shows the gate pass at the gate of the designated EZ If
there is no observation of the documents and cargo, the driver can go to the designated
factory.

TRADE FINANCE AND FOREIGN EXCHANGE 5

 ABSTRACT
Purchase/Sale Contract, Trade Payment
Methods/Tarde Services Products, Cash in
Advance, Open Account, Documentary Collection,
Documentary Credit (Letter of Credit or LC),
Standby LC, International Bank Guarantees, Bank
Payment Obligation (BPO) and Supply Chain
Finance (SCF), Factoring and Forfaiting, Buyers’
Credit and Suppliers’ Credit

INTERNATIONAL
TRADE PAYMENT AIBB
Associate of the Institute Of Bankers, Bangladesh
METHODS
Chapter Three
Chapter 3: International Trade Payment Methods

1. What are the main components of a Purchase/Sale Contracts?

Answer: The following are the main components for a Standard Sales/Purchase Contract:

Name and address of Seller & Buyer Agents Contract Price (Currency)

Bank Address Including SWIFT Description of the Goods

Resolution of Disputes (Arbitration or Litigation) Methods of Payment

Applicable Law (National Law or CISG) Document Requirements

Liability for Lack of Conformity of Goods Liability for Delay

Delivery Terms (Incoterms)

2. How many trade payments methods are available globally? Name these.
Answer: There are four trade payment system available in international trade. The followings
are:
Cash in advance
Open account
Documentary collection
Documentary credit (LC)

3. Under cash in advance, exporter’s risk is completely protected. Justify.

Answer: Cash in advance method can eliminate credit risk, or the risk of non-payment from foreign
buyers. Cash-in-advance is the most secure method of payment for the exporter because the
importer pays the full or a significant amount of the payment before the goods are shipped. Usually,
payments are made using wire transfers or credit cards. This method is generally preferred by the
parties who have previously done business and established a trust relationship with each other.
4. What is role of banks under documentary collection?
Answer: Collection method provides a means of payment whereby the exporter can ensure that the
buyer should not be able to take possession of the goods until he has paid or given a payment
undertaking. The importer's or buyer's bank receives the documents and notifies the buyer that
documents have been received. The buyer's bank requests payment from the buyer in exchange for
the documents. Once the buyer's bank has been paid, or the buyer has accepted the time draft, the
bank releases the documents to the buyer.
5. How many parties are there in documentary collection? Name these.
Answer: There are four parties in documentary collection which are:
 PRINCIPAL: Exporter, seller, remitter, drawer of the draft.
 REMITTING BANK: Exporter's bank handling the collection
 PRESENTING OR COLLECTING BANK: Usually the buyer's bank.
 DRAWEE: Importer, buyer, payee.

TRADE FINANCE AND FOREIGN EXCHANGE 1

Chapter 3: International Trade Payment Methods

6. Documentary Credit offers protection to both exporters and importers. How?

Answer: As a trade finance tool, Letters of Credit are designed to protect both exporters and
importers. This means the exporter gets a guarantee of payment while offering the importer
reasonable payment terms. Documentary Credit reduces the risk of non-payment for the buyer. It
facilitates international trade by providing a secure payment method.

7. Show the flow chart of Documentary Credit.

Answer:

8. Stand by LC is related to Non-Performance. What does it mean?

Answer: The standby credit is to be distinguished from the other types of letters of credit in that
the primary function of the standby is to serve as a security or guarantee rather than as a trade
payment mechanism. Under a typical standby, the beneficiary will claim payment in the event that
the contract partner has failed to perform or fulfill certain obligations. Standby Credit represents:
 Return any funds that the applicant borrowed, received advances for, or was given to their
account.
 Reimburse the applicant for whatever debt they have experienced
 Make refund in the event that the applicant fails to fulfill a commitment.
9. How many payment terms are available under documentary collection? Name
these.
Answer: Three payment methods found in documentary collection mentioned below:
I. Document against payment (D/P): The D/P transaction utilizes a sight draft, where
payment is on demand.
II. Documents against acceptance (D/A): It is a credit agreement between an importer and
an exporter.
III. Clean collection: Clean collections are collections of financial documents without
attached commercial documents.
TRADE FINANCE AND FOREIGN EXCHANGE 2
Chapter 3: International Trade Payment Methods

10.What are the uses of international bank guarantee?

Answer: International Bank Guarantees are availed for commercial and non-commercial purposes.
Commercial guarantees are related to commercial contract between the supplier and the customer.
Non-commercial guarantees are required in order to conduct business, even though they have no
direct connection to commercial contracts.
11.Which trade payment method is most preferable in the context of the global
trade market?
Answer: The most preferable payment method in global trade often depends on the level of trust
between the buyer and the seller, the nature of the goods or services being traded, and the specific
circumstances of the transaction. Different payment methods offer varying levels of risk and
convenience. The choice of payment method is often influenced by factors such as the level of
trust between the parties, the financial strength of the buyer and seller, the nature of the goods, and
the regulatory environment of the countries involved. Many international transactions involve a
combination of payment methods to balance the interests and risks of both parties. It's essential for
businesses engaged in global trade to carefully evaluate and choose the payment method that best
suits their specific needs and circumstances.
12.How many parties are commonly engaged in international bank guarantees?
Name these.
Answer: Considering the structure, two types of guarantees are issued: direct and indirect.
Direct guarantee has three parties: Indirect guarantee is a four-party demand
 The applicant guarantee:
 The guarantor and  The applicant
 The beneficiary  The guarantor and
 The beneficiary
 Counter guarantor

13.Distinguish between direct bank guarantee and indirect bank guarantee.

Answer:
Factors Direct bank guarantee Indirect bank guarantee
A direct guarantee is one where a bank
In an indirect guarantee, a second
is asked to provide a guarantee by its
Definition bank issues a guarantee in return for
account holder, in favor of the
an already issued guarantee.
beneficiary.
Direct relationship between issuing bank
Relationship No direct relationship
and foreign beneficiary
Cost Less expensive More expensive
Time Less intensive More intensive
Exporter’s risks Less risks More risks
Importer’s risks More risks Less risks
There are 2 expiry date
Expiry of the bank guarantee
Expiry date Expired when on the expiry date
Expiry of the counter-liability and
counter -guarantee

TRADE FINANCE AND FOREIGN EXCHANGE 3

Chapter 3: International Trade Payment Methods

14.What is factoring? How it is different from forfaiting?

Answer:
Factoring: Factoring in finance is a source of immediate capital. Factoring is a type of
finance in which a business would sell its accounts receivable (invoices) to a third party to
meet its short-term liquidity needs. A factor purchases trade debts or receivables from a
client firm at a discounted price.
Forfaiting: Forfaiting is a method of trade finance that allows exporters to obtain cash by
selling their medium and long-term foreign accounts receivable at a discount to a forfaiter,
a specialized finance firm or a department in a bank.

Factors Factoring Forfaiting

Extent of Finance 75-85% value of the invoice 100% of invoice value

Finance Short term finance Long term finance

Services Provided Day to day Service No services are provided
Recourse With or Without recourse always without recourse
Sales By Turnover By Bills

15.What is the risk ladder for an exporter in regards to various trade payment
methods?
Answer: Exporters face different levels of risk depending on the trade payment method they
choose. Here's a risk ladder, ranking payment methods from lower to higher risk for exporters:
Cash in Advance:
 Risk Level: Low
 Explanation: The exporter receives payment before shipping the goods, minimizing
the risk of non-payment.
Letter of Credit (L/C):
 Risk Level: Moderate
 Explanation: Provides a high level of security, however, there is still a risk of
discrepancies in document compliance.
Documentary Collections:
 Risk Level: Moderate to High
 Explanation: the level of risk depends on whether it's Documents against Payment
(D/P) or Documents against Acceptance (D/A).
Open Account:
 Risk Level: High
 Explanation: The exporter ships the goods and relies on the buyer to make payment
at an agreed-upon later date.
It's important to note that the supposed risk can vary depending on the specific circumstances of
the transaction, the trust level between the parties, and the nature of the goods or services being
traded.

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Chapter 3: International Trade Payment Methods

16.What is the risk ladder for an importer in regards to various trade payment
methods?
Answer: For importers, the risk ladder associated with various trade payment methods is generally
opposite to that of exporters. Here's a risk ladder for importers, ranking payment methods from
lower to higher risk:
Cash in Advance:
 Risk Level: Low
 Explanation: Importers face minimal risk as they make the payment before the
goods are shipped.
Letter of Credit (L/C):
 Risk Level: Moderate
 Explanation: While providing a high level of security, the importer must fulfill
specified conditions to ensure the release of payment.
Documentary Collections:
 Risk Level: Moderate to High
 Explanation: the level of risk depends on whether it's Documents Against Payment
(D/P) or Documents Against Acceptance (D/A).
Open Account:
 Risk Level: High
 Explanation: Importers receive the goods before making payment, exposing them
to the risk of non-payment.
Importers need to carefully assess the risk and benefits associated with each payment method based
on factors such as their financial strength, relationship with the exporter, and the nature of the
goods or services.

17.Please explain with an example how standby or demand guarantee can be useful
tool for commercial import and export?
Answer: Standby credit or demand guarantee play a crucial role in international trade by providing
financial security and reducing risks for parties involved in transactions. Standby credit or demand
guarantee in international trade serve as a risk mitigation tool, fostering trust between parties
involved in transactions. They provide financial assurances that encourage smoother and more
secure trade relationships, especially when dealing with unfamiliar or distant partners.

TRADE FINANCE AND FOREIGN EXCHANGE 5

Chapter 3: International Trade Payment Methods

18.What is your opinion regarding prospect of internal factoring for export under
open account considering FE circular 25, June 30, 2020?
Answer:
FE circular 25, June 30, 2020 state, “Authorized Dealers (ADs) are permitted to settle
inland LCs through their NOSTRO accounts during the banking operation in limited
scale on general holidays.”
The statement indicates that Authorized Dealers (ADs) are allowed to settle inland Letters of Credit
(LCs) through their NOSTRO accounts during banking operations on general holidays but in a
limited capacity.
 It can be beneficial for trade transactions that may be time-sensitive or require immediate
attention.
 By using own NOSTRO can simplify the settlement process and enhance efficiency.
 Limitation due to manage risk, control exposure, or ensure that the process remains within
manageable bounds.
 The ability to process transactions on holidays can be crucial for business continuity.
19.Please explain positive and negative impact of buyer’s credit facility for the good
import into Bangladesh?
Answer:
Positive Impact of Buyer's Credit Facility for Goods Import into Bangladesh:
 Improved Liquidity: Buyer's credit allows the importer to defer payment for the
imported goods, improving short-term liquidity.
 Enhanced Working Capital Management: Buyer's credit allows the importer to
defer payment for the imported goods, improving short-term liquidity.
 Reduced Financial Strain: Buyer's credit can ease the financial burden on the
importer
 Opportunity for Better Terms: Importers may negotiate better terms with suppliers
when they have access to buyer's credit
 Facilitation of Large Transactions: Buyer's credit facilitates the import of high-
value goods or large quantities, which might be challenging for the importer to
finance directly.
Negative Impact of Buyer's Credit Facility for Goods Import into Bangladesh:
 Accrual of Interest Costs: Utilizing buyer's credit involves interest costs.
 Foreign Exchange Risk: If the buyer's credit is denominated in a foreign currency,
the importer is exposed to foreign exchange risk.
 Dependency on External Financing: The importer becomes dependent on external
financing.
 Potential Impact on Credit Rating: Excessive reliance on credit might impact the
importer's credit rating, especially if the business struggles to meet payment
obligations.
 Complex Documentation and Compliance: Buyer's credit transactions often
involve complex documentation and compliance requirements.
 Limited Negotiation Power: While buyer's credit can provide negotiating leverage,
it might also limit the importer's ability to negotiate better terms with suppliers.

TRADE FINANCE AND FOREIGN EXCHANGE 6

 ABSTRACT
Documents Commonly Used in Trade
Facilitation, Commercial Invoice, Forms of Invoice,
Transport Documents, Types of Transport
Documents, Determination of Shipment Date-
Rationale and Process, Transshipment,
Examinations of Documents: Common
Discrepancies in Transport Documents, Insurance
Document, Examination: Common Discrepancies
in an Insurance Document, Bill of Exchange, Other
Documents as per UCP 600, Documents in Use in
International Trade in Bangladesh
DOCUMENTS IN
TRADE SERVICES AIBB
Associate of the Institute Of Bankers, Bangladesh
Chapter Four
Chapter 4: Documents in Trade Services

1. What are the different types of Transport documents?

Answer: Usually a transport document are two types:
Single Modal Transport Document
 Marine/Ocean B/L
 Charter Party B/L
 Air Transport Document
 Road, Rail or Inland Waterway Transport Document
 Courier and Post Receipts
Multimodal /Combined Transport Document.

2. What are the common requirements of Bill of Lading under UCP 600?
Answer: Common Contents of a Transport Document:
 Name of the carrier and be signed
 On board notation
 Place of receipt, port of loading, port of discharge and place of delivery
 Description of goods consistent with that in the credit
 Identifying marks and numbers (if any)
 The name of the carrying vessel or the intended carrying vessel
 The names of shipper, consignee (if not made out `to order')
 the name and address of any `notify' party
 Whether freight has been paid or is still to be paid
 The number of originals issued to the consignor if issued in more than one original
 Terms and conditions of the carriage
 Date of issuing the documents

3. What are the types of documents under documentary collections?

Answer: In documentary collection and documentary credit payment methods, banks are directly
associated with handling of documents. In case of documentary collection documents are
categorized into two categories:
Commercial Documents:
 Bill of lading
 Insurance Policy
 Commercial Invoice
 Certificate of Origin etc.
Financial Documents:
 Bill of Exchange
 Cheque
 Promissory Note etc.

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Chapter 4: Documents in Trade Services

4. What are the types of documents under documentary credit?

Answer: In Documentary Credit, documents are divided into four groups:
 Transport Documents
 Commercial Invoice
 Insurance Documents &
 Other Documents
5. What do you mean by Commercial Invoice, bill of exchange, Packing List,
Weight List?
Answer:
Commercial Invoice: The commercial invoice is the seller’s bill for the merchandise. The
commercial invoice details the price(s), value, and quantity of the goods being sold. It is a
required document for the export and import clearance process.
Bill of Exchange: A bill of exchange is an instrument in writing containing an
unconditional undertaking signed by the maker directing a certain person to pay on demand
or at a fixed or determinable future time, a certain sum of money only to or to the order of
a certain person or to the bearer of the instrument.
Packing List: It is an international trade document, used to identify details of the shipment
in terms of packaging. The packing list is a detailed listing of the contents of the shipment
and acts as a supporting document.
Weight List: It is a commercial document, which is used in international trade in order to
give detailed information about the weight of the order.

6. What are the major requirements of Insurance Document as per UCP 600?
Answer: Major Requirements of Insurance Documents under UCP 600 and ISBP 745
 Appropriate Document
 Insurance policy & Certificate
 Declaration under open cover
 Signing capacity
 Insurance company
 Underwriter
 Agent & Proxy of Insurance Company or Underwriter
 Journey:
 Minimum coverage LC journey.
 Date
 Insurance coverage date must have to cover shipment date.
 Risk
 ICC A, ICC B, ICC C
 Amount
 Coverage amount needs to be mentioned
 110% Insurance coverage of the CIF or CIP value of the goods.
 Currency
 LC currency needs to be satisfied.

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Chapter 4: Documents in Trade Services

7. How to determine Shipment Date in case of Bill of Lading as per UCP 600?
Answer: Determination of Date of Shipment as per UCP 600
 Multimodal /Combined Transport Document: Date of dispatch /Taking in Charge/
Shipped on Board, otherwise date of issuance.
 Bill of Lading: On Board Notation date, otherwise date of issuance.
 Air Transport Document: Specified actual date of shipment, otherwise date of issuance.
 RRI Transport Document: Either Indicate the date of shipment or the date goods have
been received for shipment/dispatch/carriage, otherwise date of issuance.
 Courier Receipt: Date of pick-up or receipt.
 Post Receipt/Certificate of Posting: Stamped as signed date evidencing receipt of goods
for transport.
 If the presentation consists of more than one transport documents the latest date of
shipment is the date of shipment.
 If the expression “on or about” is used in regard to date of shipment It specifies that
shipments must be made between five calendar days prior to and five days following the
specified date, including start and end days.

8. A documentary credit available with a nominated bank by negotiation. The

beneficiary presented documents to the nominated bank and that nominated bank
forwarded documents to the issuing bank. How the issuing bank decides a
presentation is late?
Answer: Late presentation defines where documents are presented after the final expiry date. If the
date of presented document by the nominated bank to issuing bank is after the final expiry date of LC
than issuing bank can decide that the presentation is late.

9. What do you mean by “data need not to be identical to but must not conflict with”
in article 14 (d) of UCP 600?
Answer: The Article 14 d of UCP600 states that “the data in a document, when read in context
with the credit, the document itself and international standard banking practice, need not be
identical to, but must not conflict with, data in that document, any other stipulated document
or the credit.”
 The provision acknowledges that the data in a document need not be identical to other
stipulated documents or the credit itself.
 The data must not conflict with the information found in other documents, the letter of
credit, or international standard banking practices.

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Chapter 4: Documents in Trade Services

10.What do you mean by the concept “fulfil function” under article 14 (f) of UCP
600?
Answer: The Article 14 f of UCP600 states that “If a credit requires presentation of a document
other than a transport document, insurance document or commercial invoice, without
stipulating by whom the document is to be issued or its data content, banks will accept the
document as presented if its content appears to fulfill the function of the required document
and otherwise complies with sub-article”.
 If the document appears to fulfill the purpose of the required document and otherwise
complies with sub-article, banks will accept it as presented. It means if documents are
complying with the LC or the criteria or standards outlined in the sub-article than bank will
accept the document.
11.What is the general rule of UCP 600 for description of the goods on bill of
exchange, commercial invoice, bill of lading, certificate of origin and packing list?
Answer: The description of the goods must match the Letter of Credit's description is the general
rule of UCP 600 for description of the goods on bill of exchange, commercial invoice, bill of
lading, certificate of origin and packing list.

12.What is the minimum percentage requirement of an insurance documents under

UCP 600 article 28: (a) when the credit silent as to the coverage? And (b) when the
credit specify the requirement of the percentage of insurance coverage?
Answer: Under UCP 600, Article 28 addresses insurance documents in the context of letters of
credit. It provides guidance on the minimum percentage of insurance coverage required when
presenting insurance documents. The specific requirements depend on whether the letter of credit
is silent on the coverage or if it explicitly specifies a percentage. Let's address both scenarios:
When the Credit is Silent as to the Coverage:
If the credit is silent regarding the percentage of insurance coverage, UCP 600, Article 28(a) states
that the minimum coverage should be for the percentage specified in the insurance certificate, but
not less than 110% of the CIF or CIP value of the goods. This means that even if the insurance
certificate indicates a percentage lower than 110%, the coverage should be at least 110% of the
CIF or CIP value.
When the Credit Specifies the Requirement of the Percentage of Insurance Coverage:
If the credit explicitly mentions the required percentage of insurance coverage, the beneficiary
must comply with this specified percentage. In this case, the coverage should be at least the
percentage stipulated in the letter of credit.
It's essential for parties involved in international trade transactions to carefully review the terms
and conditions of the letter of credit to determine the specific requirements for insurance coverage.
Failure to meet these requirements can result in discrepancies, potentially leading to delays or non-
payment under the letter of credit.

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Chapter 4: Documents in Trade Services

13.Please elaborate with an example the requirement of invoice to mention

description of the goods in the invoice must correspondent with the description of
the goods in the credit?
Answer: An invoice is a type of commercial document issued by the seller of goods, addressed to
the buyer of goods, giving a description of the goods, the price and delivery terms etc. According
to letter of credit rules, the description of the goods shown on the commercial invoice is to
correspond with the description stated in the letter of credit.
If the commercial invoice states a description of goods and services not indicated in the letter of
credit, banks raise a discrepancy which is known as description of goods on the commercial invoice
is not as per L/C terms. Any discrepancies should be identified and resolved through
communication and agreement between the parties involved.

14.Distinguish between Clean Bill of Lading and Dirty Bill of Lading.

Answer:
Clean Bill of Lading Claused /Dirty Bill of Lading

No damage to or loss of goods shortfall or damage in the goods

Shipper declares clean bill of lading Importer declares Claused bill of lading

No loss for the exporter Causes loss for the Exporter

15.Distinguish between Clean Bill of Lading and Stale Bill of Lading.

Answer:
Clean Bill of Lading: A clean bill of lading is a document that declares there was no damage to or
loss of goods during shipment.
The term "clean" indicates that the goods are in good condition and have been loaded on a
named vessel.
A Clean Bill of Lading presented on time.
Stale Bill of Lading: A bill of lading that is not presented within 21 days after shipment is called
a stale bill of lading.
The term "stale" indicates that the bill of lading has become outdated or expired.
A Stale Bill of Lading presented after the time limit.

TRADE FINANCE AND FOREIGN EXCHANGE 5

 ABSTRACT
Different Forms of Commercial Letter of Credit,
Operational Procedure of Import using
Documentary Credit in Bangladesh, Operational
Procedure of Export using Documentary Credit in
Bangladesh, Operational Procedure of Import
using Documentary Credit through Land Port in
Bangladesh, Operational Procedure of Export
using Documentary Credit through Land Port in
Bangladesh, Domestic Regulations for
Documentary Credit in case of Importation
through Land Port, Operational Procedure of Back
to Back LC in Bangladesh Purchase Sale
Agreement, Units eligible to open back to Back LC
in Bangladesh, Special Features of Back to Back LC

DOCUMENTARY
in Bangladesh, Operational Procedure of
Transferrable LC in Bangladesh, Domestic
Regulation for Examinations of Documents,
CREDIT Lodgment and Retirement

Chapter Five
AIBB
Associate of the Institute Of Bankers, Bangladesh
Chapter 5: Documentary Credit

1. Documentary Credit offers protection to both exporters and importers. How?

Answer: A Documentary Credit, or letter of credit, safeguards exporters and importers in
international trade. For exporters, it guarantees payment upon compliance with specified terms,
mitigating the risk of non-payment and ensuring creditworthiness independence. Document
requirements reduce disputes and ensure adherence to agreed-upon terms. Importers benefit from
quality assurance, with payment contingent on meeting specified criteria, and timely delivery as
per agreed schedules. The letter of credit demands specific documents, enabling importers to verify
compliance and exercise control. Overall, Documentary Credit acts as a financial intermediary,
providing a secure mechanism for international transactions, transferring credit risk to the issuing
bank, and minimizing financial and performance risks for both parties in cross-border trade.

2. Why LC needs confirmation? Name the core parties of Confirmed LC?

Answer: A Letter of Credit (LC) may need confirmation to enhance payment security, especially
when dealing with an unfamiliar or less creditworthy issuing bank. The confirming bank adds its
guarantee to the LC, assuring the exporter of payment even if the issuing bank defaults. Core
parties of a Confirmed LC:

 Importer/Buyer: The entity initiating the international trade transaction.

 Exporter/Seller: The party supplying goods or services.
 Issuing Bank: The buyer's bank that issues the LC.
 Confirming Bank: An additional bank, often in the exporter's country, that adds its
guarantee to the LC.

3. What are the roles of an advising bank?

Answer: The advising bank plays a crucial role in international trade transactions, especially in the
context of a Letter of Credit (LC). Here are the primary roles of an advising bank:

 The advising bank receives the LC from the issuing bank and verifies its authenticity.
 The advising bank informs the exporter (beneficiary) about the existence of the LC, its
terms, and conditions.
 Upon receipt of documents from the exporter, the advising bank reviews them to ensure
they comply with the terms and conditions stipulated in the LC.
 After verifying the documents, the advising bank forwards them to the issuing bank for
further examination.
 In some cases, the advising bank may also confirm the LC, adding its guarantee to
payment.
 The advising bank facilitates communication between the buyer and seller, helping to
clarify any discrepancies or issues related to the LC.

In summary, the advising bank acts as an intermediary between the issuing bank, the buyer, and
the seller, providing crucial services in terms of authentication, notification, document
examination, and communication facilitation in international trade transactions involving Letters
of Credit.
TRADE FINANCE AND FOREIGN EXCHANGE 1
Chapter 5: Documentary Credit

4. Confirming bank’s liability is secondary. Is it true? Explain.

Answer: Yes, it is true that the confirming bank's liability is secondary in the context of a confirmed
Letter of Credit (LC). When a confirming bank adds its confirmation to an LC, it enhances the
payment security for the beneficiary (usually the exporter) by providing an additional layer of
assurance.
The confirming bank, by adding its confirmation, undertakes a secondary liability. It becomes
obligated to pay the beneficiary according to the terms of the LC if the issuing bank fails to fulfill
its payment obligation. The confirming bank's confirmation is an additional guarantee, providing
more security to the beneficiary.
5. Differentiate between transferrable LC and transferred LC.
Answer: Transferrable LC and Transferred LC are terms associated with the transfer of rights
under a Letter of Credit (LC), but they refer to different aspects:

Transferrable LC:
 Nature: Originally issued as transferrable.
 Beneficiary's Ability: The primary beneficiary (first seller) has the right to transfer
a portion of the credit to one or more secondary beneficiaries (second sellers).
 Scope of Transfer: The original LC specifies that it is "transferrable," allowing the
primary beneficiary to share the credit with others.
Transferred LC:
 Nature: Originally issued as a regular (non-transferrable) LC.
 Beneficiary's Ability: The beneficiary (seller) transfers the rights, but the transfer
is not explicitly mentioned in the original LC.
 Scope of Transfer: The transfer is usually done through a separate agreement
between the original beneficiary and the new beneficiary. The original LC does not
indicate that it is transferable.
6. What is a back to back LC? Why back to back LC could be risky?
Answer:

Back to back LC: The back to back LC is a new LC opened on the basis of an original LC
(master LC) in favor of another beneficiary. The back to back LC is actually made up for
two different LCs, one issued by the importer’s bank to the intermediary and other one
issued by the intermediary’s bank to the seller. Here are some of the risks involved in
dealing with a back to back letter of credit:
 The master LC may expire before the documents from the broker's bank arrive if
the expiration date was set without a sufficient amount of time. Under these
conditions, the settlement gets complex.
 The terms and conditions of the trade might differ between the back-to-back LC
and the master LC, or some other important information might be different. This
causes discrepancies in the paperwork, which makes the settlement procedure
difficult.

TRADE FINANCE AND FOREIGN EXCHANGE 2

Chapter 5: Documentary Credit

7. Stand by LC is related to Non-Performance. What does it mean?

Answer: The standby credit is to be distinguished from the other types of letters of credit in that
the primary function of the standby is to serve as a security or guarantee rather than as a trade
payment mechanism. Under a typical standby, the beneficiary will claim payment in the event that
the contract partner has failed to perform or fulfill certain obligations. Standby Credit represents:
 Return any funds that the applicant borrowed, received advances for, or was given
to their account.
 Reimburse the applicant for whatever debt they have experienced
 Make refund in the event that the applicant fails to fulfill a commitment.

8. Depict the flow chart of Documentary Credit in Bangladesh’s context.

Answer:

9. What are the roles of a reimbursement bank in LC process?

Answer: Reimbursing Bank is one of the parties involved in an LC. Reimbursing bank is the party
who authorized to honor the reimbursement claim of negotiation/ payment/ acceptance.
Reimbursing Bank is the settlement bank between the issuing bank and the nominated bank or the
confirming bank.
The confirming bank does not trust the issuing bank in terms of risk issues and demands more
security. In this situation presence of the reimbursing bank is a requirement for the confirmation.
Without receiving a reimbursement undertaking from the reimbursing bank, the confirming bank
may elect not to add its confirmation to the credit.

TRADE FINANCE AND FOREIGN EXCHANGE 3

Chapter 5: Documentary Credit

10.Red Clause LC is also a financing technique for the exporter. How?

Answer: A Red Clause Letter of Credit (LC) serves as a financing technique for exporters by
allowing an advance payment or credit before the shipment of goods. It includes a specific clause
(the "red clause") that permits the advising or confirming bank to make pre-shipment advances to
the exporter. This advance is typically provided against the presentation of certain documents,
such as a shipping or warehouse receipt, which assures the bank that the goods are ready for
shipment. The exporter can use the funds to cover production or other expenses related to fulfilling
the export order. Once the goods are shipped and the required documents are presented, the
confirming bank reimburses itself for the advance from the proceeds of the final payment made by
the issuing bank. This mechanism helps exporters manage cash flow and fulfill orders more
effectively.
11.Describe examination of documents in documentary credit.
Answer: In the context of documentary credits operations, the examination process is a crucial
phase for determining compliance with the terms of the letter of credit (LC). The issuing bank,
confirming bank (if applicable), and the nominated bank are authorized to examine the
presentation received from the presenter, who can be the beneficiary, a bank, or another party. This
examination must be completed within five banking days of receiving the presentation.
If the presentation is compliant, the issuing bank is obligated to honor it. However, if
discrepancies exist, the issuing bank may, at its discretion, request a waiver from the applicant. If
the applicant agrees to waive the discrepancies, and the issuing bank accepts, the presentation may
be honored despite non-compliance.
If the issuing bank decides to refuse the presentation, it must issue a notice of refusal in
adherence to UCP 600 Article 16(c). This notice must be sent within five banking days through
telecommunication (SWIFT) or any expeditious means. Failure to provide a timely notice of
refusal precludes the issuing bank from later claiming that the presentation does not comply.
12. When should the issuing bank use second advising bank?
Answer: The use of a second advising bank in international trade transactions typically occurs
when there is a need for an additional layer of security or when the parties involved want to involve
a bank with specific expertise or presence in the buyer's or seller's country. In some cases,
especially in complex international transactions or when there is a lack of trust between the parties,
the buyer may request that the advising bank involves a second advising bank. The second advising
bank is usually located in the buyer's country and adds an extra layer of authentication to the
transaction. It's important to note that the use of a second advising bank is not always necessary
and depends on the specific circumstances and the preferences of the parties involved in the
transaction.

TRADE FINANCE AND FOREIGN EXCHANGE 4

Chapter 5: Documentary Credit

13.What are the essential elements for a notice of refusal?

Answer: A notice of refusal must contain refusal statement, reasons for refusal and status of the
documents.
14.Please explain “applicant waiver process” of UCP 600 article 16 with example?
Answer: UCP 600 article 16 state that "When an issuing bank determines that a presentation
does not comply, it may in its sole judgement approach the applicant for a waiver of the
discrepancies. This does not, however, extend the period mentioned in sub-article 14 (b)."
This provision allows the applicant to waive discrepancies in the documents presented by the
beneficiary. When the issuing bank examines the documents presented by the beneficiary, if it
finds any discrepancies, it must notify the applicant. Upon receiving the notice of discrepancies,
the applicant can choose to waive the discrepancies. This means the applicant agrees to accept the
documents despite the identified discrepancies. This means that the applicant explicitly
communicates to the issuing bank that it waives the discrepancies and instructs the bank to accept
the documents. The notice of discrepancies may be judged to have been automatically waived if
the applicant does not respond to it within a reasonable amount of time or if their response is
unclear. The issuing bank may proceed to honor the credit in such circumstances.
15.Please explain with an example what do you mean by “An issuing ban undertaking
to reimbursement the nominated bank is independent from the issuing bank’s
undertaking to the beneficiary”?
Answer: It means that the obligations of the issuing bank to reimburse the nominated bank are
separate and independent from the obligations of the issuing bank to the beneficiary. The issuing
bank provides a separate and independent undertaking to reimburse the nominated bank for
payments made or liabilities incurred under the letter of credit. Simultaneously, the issuing bank
provides an undertaking to the beneficiary that, upon the presentation of complying documents, it
will make the payment or accept the drafts as specified in the letter of credit.
16.Please elaborate when any amendment enforces to the issuing bank, confirming
bank and the beneficiary?
Answer: The enforcement of amendments involves different parties in the letter of credit process,
including the issuing bank, confirming bank (if applicable), and the beneficiary. Here's an
elaboration on when amendments come into play for each party:
Issuing Bank:
 Amendments may be required if there are changes requested by the applicant
 If there are discrepancies in the documents presented by the beneficiary.
The issuing bank should ensure that the proposed amendment is in compliance with the
terms and conditions of the letter of credit.
Confirming Bank:
 Ensure that any amendments are acceptable and in line with its confirmation
undertaking.
 If an amendment is accepted by the issuing bank but not by the confirming bank, it
may lead to a discrepancy.
Beneficiary:
 When submitting documents to the bank for negotiation or payment, the beneficiary
must abide by the amended terms if they accept the adjustment. Discrepancies and
non-payment may arise from failure to comply with the amended terms.

TRADE FINANCE AND FOREIGN EXCHANGE 5

Chapter 5: Documentary Credit

17.Please explain when a nominated bank may have to refund with interest to the
issuing bank?
Answer: In a letter of credit transaction, a nominated bank may be required to refund with interest
to the issuing bank in specific situations. This typically occurs when the nominated bank has made
a payment or provided financing to the beneficiary before receiving reimbursement from the
issuing bank. Here are the common scenarios:
 If the issuing bank fails to reimburse the nominated bank for a payment made or
financing provided, the nominated bank may have the right to demand
reimbursement along with interest.
 The interest rate that the designated bank may apply to the issuing bank for any
time that payment is not received on time may be stated in the letter of credit.
18.Can you please explain with an example how reimbursement undertaking process
of URR 725 works in international trade?
Answer: The Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits
(URR 725) provides guidelines for the reimbursement process between reimbursing banks
(reimbursing bank reimbursing another reimbursing bank) in documentary credit transactions.
Here's an overview of the reimbursement undertaking process under URR 725:
 The process typically begins with the issuing bank issuing a reimbursement
authorization to the reimbursing bank.
 The reimbursing bank receives a reimbursement claim from the claiming bank
along with the required documents.
 The reimbursing bank examines the documents presented by the claiming bank to
ensure they comply with the terms and conditions of the reimbursement
authorization.
 If the documents are in compliance, the reimbursing bank is obligated to make
payment to the claiming bank or undertake to reimburse the claiming bank.
 The reimbursing bank then forwards the reimbursement claim to the issuing bank.
 Upon receipt of the reimbursement claim and complying documents, the issuing
bank is required to reimburse the reimbursing bank.
 URR 725 provides guidance on the payment of interest. If the reimbursement is
delayed, the reimbursing bank may be entitled to charge interest for the period of
delay.
 Throughout the process, clear and prompt communication between the parties is
essential

19.When should an issuing bank return a discrepant presentation? And what process
should the issuing follow for returning documents?
Answer: In international trade transactions involving letters of credit, a presentation is considered
"discrepant" when the documents submitted by the beneficiary (seller) do not comply with the
terms and conditions of the letter of credit.
When a presentation does not comply, issuer may reject the demand through serving a single notice
to the presenter. Contents of discrepancy notice must contain statement that the guarantor reject
the demand along with reasons for rejection.

TRADE FINANCE AND FOREIGN EXCHANGE 6

 ABSTRACT
The United Nations Convention on Contracts
for the International Sale of Goods [CISG],
Uniform Customs and Practice for Documentary
Credits (UCP 600), International Standard Banking
Practice (ISBP), Uniform Rules for Bank-to-Bank
Reimbursements under Documentary Credits
(URR 725), Uniform Rules for Collections (URC
522), International Standby Practices (ISP98),
Uniform Rules for Demand Guarantees (URDG
758), Incoterms® 2020 Rules, Uniform Rules for
Bank Payment Obligation (URBPO), DOCDEX Rules
and ICC Arbitration, Uniform Rules for Forfaiting &
INTERNATIONAL General Rules for International Factoring, Laws of
International Carriage of Goods, UNCITRAL Model

REGULATIONS FOR Law on Electronic Transferable Records

TRADE SERVICES
Chapter Six
AIBB
Associate of the Institute Of Bankers, Bangladesh
Chapter 6: International Regulations for Tarde Services

1. What are the key international regulations associated with LC?

Answer: International Regulations of International Trade Services are:
 United Nations Vienna Convention on Contract of Sale of Goods 1980
 Uniform Customs and Practice for Documentary Credit (UCP 600)
 Uniform Rules for Collections (URC 522 including eURC Version 1.0)
 Uniform Rules for Bank-to-Bank Reimbursements under Documentary Credits
(URR 725)
 International Standard Banking Practice (ISBP 745)
 The Incoterms ® 2020 Rules
 International Standby Practices [ISP-98]
 Uniform Rules for Demand Guarantees [URDG 758]
 General Rules for International Factoring (GRIF)
 Documentary Instruments Dispute Resolution Expertise Rules (DOCDEX)
 UNCITRAL Model Law on Electronic Transferable Records (MLETR)
2. Point out key features of UCP 600?
Answer: The Uniform Customs and Practice for Documentary Credits (UCP 600) is a set of
internationally recognized rules published by the International Chamber of Commerce (ICC). It
provides a standardized set of guidelines for the use of letters of credit in international trade. Here
are key features of UCP 600:
 Governing the issuance and execution of letters of credit both for domestic and
cross border
 Protected the interests of both the exporters and importers
 Helps to maintain liabilities and responsibilities of different parties engaged in the
process of LC
 Allow flexibility of accommodating local regulations and necessary changes
 Provide uniformity in the examination of documents by banks
3. What is the purpose of ISBP?
Answer: The ISBP is an ICC publication which provides important guidance to documentary credit
examiners and practitioners relating to the examination of documents presented against Letters of
Credit. International Standard Banking Practice - ISBP 2013 is the latest and the most
comprehensive guide to handling and examining trade documents under letters of credit. Use of
ISBP has significantly reduced discrepancies for documentary credits and is regularly used by
banking, logistics, insurance, legal and corporate professionals and academics worldwide.

4. What are the new addition in Incoterms 2020?

Answer: In Incoterms® 2020 Rules, DAT has been replaced by DPU. Two important notable
changes that took place in the current incoterms® 2020 rules are:
 FCA trade terms with on board bill of lading under FCA trade terms which requires
on board bill of lading rather than receive for shipment bill of lading.
 Instead of providing minimal insurance coverage, the exporter must provide ICC
(A) insurance coverage under the terms of the CIP trade agreement. As required by
the Incoterms® 2010 regulations (ICC(C)).

TRADE FINANCE AND FOREIGN EXCHANGE 1

Chapter 6: International Regulations for Tarde Services

5. Distinguish between Reimbursement Authorization and Reimbursement

Undertaking as per URR?
Answer:
Reimbursement Authorization: A reimbursement authorization is an order or authorization
that an issuing bank issues to a reimbursing bank, independent of the credit, to refund a
claiming bank or, at the issuing bank's request, to accept and pay a time draft drawn on the
reimbursing bank.
Reimbursement Undertaking: A "reimbursement undertaking" is an independent,
irreversible commitment made by the reimbursing bank to the claiming bank specified in
the reimbursement authorization, upon request or authorization from the issuing bank, to
honor that bank's reimbursement claim, provided that the terms and conditions of the
reimbursement undertaking are met.
6. Write a Note on GRIF.
Answer: The FCI code of international factory customs renamed it the general rules for
international factoring. It has provided its new standard for correspondent factoring relationships
and probably more than 80% of the world's cross border factoring volumes are governed by these
rules. The GRIF is a uniform set of rules and regulations issued by FCI to govern transactions
amongst FCI members. It is used when transacting two factors cross border factoring, and adopted
by all members of Factors Chain International. GRIF have eight sections as follows:

 Section-I: General provisions

 Section-II: Assignment of receivables
 Section-III: Credit Risk
 Section-IV: Collection of receivables
 Section-V: Transfer of funds
 Section-VI: Disputes
 Section-VII: Representations, warranties and undertakings
 Section-VIII: Miscellaneous
7. Write a short note on MLETR.
Answer: The UNCITRAL Model Law on Electronic Transferable Records (MLETR) is a legal
framework designed to facilitate the electronic transfer of negotiable instruments, such as bills of
lading and promissory notes. It provides a standardized approach for recognizing the legal validity
of electronic transferable records, ensuring their equivalence to traditional paper-based documents.
The MLETR establishes criteria for the creation, maintenance, and transfer of electronic
transferable records, promoting efficiency and reducing reliance on paper documentation in
international trade. By harmonizing legal standards across jurisdictions, the MLETR aims to
enhance legal certainty and facilitate the global adoption of electronic transferable records,
fostering a more seamless and secure environment for cross-border transactions in the digital age.

TRADE FINANCE AND FOREIGN EXCHANGE 2

 ABSTRACT
Funded and Non-Funded Credit Facilities by
Banks in Bangladesh, Pre Shipment and Post
Shipment Export Credit to Traders, Pre Shipment
Credit to Exporters, Post Shipment Credit to the
Exporter, Import Financing to the Traders, Export
Development Fund, International Factoring in
Bangladesh

INTERNATIONAL AIBB
TRADE FINANCE Associate of the Institute Of Bankers, Bangladesh

Chapter Seven
Chapter 7: International Tarde Financing

1. Distinguish between funded and non-funded trade finance products?

Answer:
Funded Trade Products Non-Funded Trade Products
 Payment against Documents (PAD)
 LIM (Loan against Imported Merchandise)  All Type of LC (BTB LC
 LTR (Loan against Trust Receipt) (Foreign/Local LC, LC for EDF, etc.)
 IBP/LDBP (Local Bills Purchase)  All Types of Guarantee (Bid Bond,
 FBP/FDBP (Foreign Bill Purchase) Performance Bond, Advance, Payment
 PC (Packing Credit) Guarantee etc.)
 Export Cash Credit (ECC)
 FL (Forced Loan)

2. Elaborate Pre-shipment trade financing products in Bangladesh.

Answer:
Packing credit, the most popular form of pre-shipment credit, is extended against transport
documents evidencing transportation of goods.
Export Cash Credit (ECC) to exporters for execution of export orders in the form of BDT
loan.
Back to Back Letter of Credit is a financing arrangement between bank and exporter
commonly to import raw materials for preparing exportable. Under this arrangement, the
bank finances export by opening a letter of credit on behalf of the exporter who has received
a letter of credit/ sales and purchase contract from the overseas buyer. The export proceeds
are then used to become the bank's credit in the name of the back-to-back L/C.
3. Write a Note on EDF.
Answer:
Export Development Fund (EDF)
The EDF was created in 1989 with the goal of making it easier for manufacturer-exporters to get
foreign exchange financing for the purchase of inputs. For the purpose of purchasing inputs,
Authorized Dealer (AD) banks may borrow US dollars from the EDF in exchange for their foreign
currency loans to manufacturer-exporters. The central bank disburses the fund through authorized
dealer banks. The present size of the fund is $300 million. EDF is held and managed by the Foreign
Exchange Reserve and Treasury Management Department (FRTMD) at the head office of BB.
EDF loan disbursements to ADs in USD will be charged interest @ six-month USD LIBOR+1
percent, with the ADs charging @ six- month LIBOR +2.5 percent on their USD loan
disbursements to manufacturer-exporters. When the ADs receive the earnings of the relevant
exports, they have 180 days to repay the EDF loans from BB. However, BB may extend this time
up to 270 days if the ADs apply and provide an explanation for why a longer timeframe is required
for the repatriation of export proceeds. The cheaper loans from the EDF will help exporters face
the impact of recession and maintain competitiveness on global markets.

TRADE FINANCE AND FOREIGN EXCHANGE 1

Chapter 7: International Tarde Financing

4. Describe process flow of International Factoring.

Answer:
Purchase/Sale (Open Account) Agreement between Exporter and Importer

Export Factoring Agreement between Exporter and Bank (Export Factor) for Payment Guarantee

Obtaining Payment Guarantee from Import Factor

Issuance of EXP Form and Delivery of Goods

Processing Export Documents as per arrangement and Certificate Of Authorized Dealer To Carrier Company

Purchase of the Receivable by Bank without Recourse

Payment Collection by Import Factor from Importer and Remitting Fund to Export Factor

Payment from Import Factor to Bank (Export Factor) in case of non-payment from importer

5. Depict process flow of International Bank guarantees in the context of

Bangladesh.
Answer:
Process Flow of Direct Bank guarantees Issued from Bangladesh:

Pre-issuance Phase
Issue and transmit the guarantee
Issue Amendment
Received Loan or Advance Payment
Received Claim

Process Flow of Indirect Bank guarantees Issued from Bangladesh:

Issue Counter Guarantee

Amendment of Counter Guarantee
Issuance of guarantee by guarantor
Claim received by guarantor, if any
Record Keeping and Reporting

TRADE FINANCE AND FOREIGN EXCHANGE 2

Chapter 7: International Tarde Financing

6. What are the key functional areas of offshore banking in Bangladesh? What is
UPAS?
Answer: The key functional areas of offshore banking in Bangladesh are given below:
An independent unit of Profit rate is LIBOR Wire & electronic fund
Foreign exchange
the bank plus 2 to 4% transfer
Transaction in foreign Corporate
Deposit taking Fund management
currency administration
Local capital
Investment L/C & trade finance Trustee services
requirement in low

UPAS LC: UPAS means Usance Payable at sight. Under this Letter of credit, the exporter will get
the payment at sight if the documents are credit compliant. The importer will be charged interest,
acceptance commission and other charged as per the terms of LC for using this letter of credit.

7. Please comment on “Impact of offshore Banking business in Bangladesh”?

Answer: The impact of offshore banking in Bangladesh has been both positive and controversial.
On the positive side, potentially tax-efficient savings and investments in various currencies, hold
money, make and receive payments in multiple currencies, manage foreign exchange, access
international expertise and investment advice, keep your money in a secure and central location,
connected to your local accounts, keep the same bank account every time to move and fostering
economic growth and creating job opportunities. However, the offshore banking sector in
Bangladesh has faced scrutiny due to concerns about financial transparency and potential misuse
for illicit activities such as money laundering. Despite these challenges, offshore banking has
played a pivotal role in diversifying the financial landscape of Bangladesh.

8. Please comment on “Impact of EDF facility” in our export?

Answer: The EDF (Export Development Fund) facility has had a significant impact on
Bangladeshi exports. By providing financial support to exporters, the EDF has played a crucial
role in boosting the country's export-oriented industries. It has facilitated the growth of various
sectors by offering funds for infrastructure development, technology adoption, and market
diversification. The EDF has been instrumental in helping Bangladeshi businesses meet
international standards, enhance product quality, and explore new markets. This financial support
has empowered exporters to compete globally and expand their footprint.
Additionally, the EDF has contributed to employment generation and economic development by
supporting industries that heavily rely on exports. However, effective management and utilization
of the EDF are essential to ensure that the funds are directed towards sustainable and inclusive
growth, reinforcing the positive impact of the facility on Bangladesh's export sector.

TRADE FINANCE AND FOREIGN EXCHANGE 3

 ABSTRACT
Foreign Exchange Market, Foreign Exchange
Market Products/Transactions, Exchange Rate
Basics, Applicable Foreign Exchange Rate in Trade
Services, Treasury Operations for Trade
Facilitation

FOREIGN
EXCHANGE MARKET AIBB
Associate of the Institute Of Bankers, Bangladesh
FUNDAMENTALS AND
EXCHANGE RATE
Chapter Eight
Chapter 8: Foreign Exchange Market Fundamentals and Exchange Rate

1. Name foreign exchange market participants and transactions.

Answer: Market Participants and Nature of Transactions in the Foreign Exchange Market:
Market Participants Nature of Transactions
Arbitragers Arbitrage
Hedgers Hedging
Speculators Speculation

Arbitragers aim to make a risk less profit from transacting in the foreign exchange market
where it's price is low and selling it where the price is high.
Hedgers enter the foreign exchange market to protect themselves against exchange rate
fluctuations, which entail foreign exchange risk.
Speculators operate in the foreign exchange market with the hope to make profit by
accepting foreign exchange risk.
2. Point out the pre-shipment export financing in Bangladesh.
Answer:
Packing credit, the most popular form of pre-shipment credit, is extended against transport
documents evidencing transportation of goods.
Export Cash Credit (ECC) to exporters for execution of export orders in the form of BDT
loan.
Back to Back Letter of Credit is a financing arrangement between bank and exporter
commonly to import raw materials for preparing exportable. Under this arrangement, the
bank finances export by opening a letter of credit on behalf of the exporter who has received
a letter of credit/ sales and purchase contract from the overseas buyer. The export proceeds
are then used to become the bank's credit in the name of the back-to-back L/C.
3. What are the major foreign exchange market products?
Answer: Foreign exchange market products/transactions include a basic product and a set of
derivative products. Derivative products are basically financial engineering tools that are derived
from the basic products.
Basic Product:
 Spot: It means foreign currency transactions on the spot.
Derivative Products:
 Forward: Forward means agreement signed in the present period and transactions
take place in some future date. This is an Over the counter product (OTC). Forward
offers both right and obligation.
 Future: Future means agreement signed in the present period and transactions take
place in some future date in a standardized setup. This is an exchange traded
product.
 Option: Options offer only right but no obligation. There might be right to buy
foreign currency (call option) or right to sell foreign currency (put option).
 Swap: Swap transactions are associated with exchange of assets or liabilities.
Foreign Exchange Swap is the combination of Spot and Forward transactions.

TRADE FINANCE AND FOREIGN EXCHANGE 1

Chapter 8: Foreign Exchange Market Fundamentals and Exchange Rate

4. How forward and future foreign exchange market products are different?
Answer:
Parameter Forward contract Future contract
Risk High Low
contract size Not Fixed Fixed
Maturity date Based on the terms of the private contract Predetermined
Initial margin Required Not required
Product Over the counter product Exchange traded product
Trade privately traded Traded publicly

5. Option offers only right but no obligation- how?

Answer: Financial derivatives known as options allow purchasers the choice, but not the duty, to
purchase or sell an underlying asset at a predetermined price and date. Call options and put options
form the basis for a wide range of option strategies designed for hedging, income, or speculation.
A call option gives the holder the right to buy the underlying stock while a put option gives the
holder the right to sell the underlying stock.

6. Write a note on UPAS.

Answer: "Usance payable at sight" refers to a payment arrangement in international trade where
the buyer agrees to pay the seller a specified amount at sight, typically upon the presentation of
relevant documents. In this scenario, the seller extends a credit period (usance) to the buyer,
allowing them time to inspect the goods before making the payment. The term "at sight" implies
that the payment is due immediately upon presentation of the required documents. This
arrangement provides flexibility to the buyer while ensuring the seller receives prompt payment
once the agreed-upon conditions are met. Usance payable at sight is a common practice in global
trade, promoting trust and efficiency by facilitating smoother transactions between parties
involved in cross-border commerce.

7. Discuss the Role of Treasury in International Trade in Bangladesh.

Answer:
 Adequate FX positions
 Forward cover facility for Importer / Exporters
 Market based pricing
 Spot sale for Import payments
 Spot purchase for export receipts
 Up to date Nostros reconciliation
 Prompt facilitation of transactions to & from foreign banks through Nostros / Vostros

TRADE FINANCE AND FOREIGN EXCHANGE 2

 ABSTRACT
Foreign Remittances, Schemes and Savings
Facilities Offered by BB to Migrants, Maintenance
of Foreign Currency Accounts by Banks, Private
Foreign Currency (PFC) Account, FC Accounts of
Non-resident Bangladeshis, FC Accounts of
Diplomatic Bonded Warehouse, FC accounts of
local and joint venture contracting firms, FC
Accounts of resident Bangladesh nationals
working with foreign/international bodies, Non-
Resident Foreign Currency Deposit Account
(NFCD), Resident Foreign Currency Deposit (RFCD)
Account, Exporters' Retention Quota (ERQ)
Account, Foreign Currency Accounts for the
Export Processing Zones, (EPZs), Economic Zones
(EZ) and High Tech Park Companies, Foreign
currency accounts for Initial Public Offerings (IPO),
Foreign currency accounts for ship builders
FOREIGN (exporters), Foreign currency accounts of shipping
companies, airlines and freight forwarders,
REMITTANCE AND Convertible and Non-Convertible Taka Accounts,
Private Non-Resident Taka Accounts, Joint

FOREIGN CURRENCY account of residents and non-residents, Non-

Resident Block Taka Account, Non-Resident
Investor's Taka Account (NITA), Foreign Currency
ACCOUNTS Account for International Gateway (IGW)
Operators, Temporary non-resident Taka account
Chapter Nine (NRTA) for foreign investors

AIBB
Associate of the Institute Of Bankers, Bangladesh
Chapter 9: Foreign Remittance and Foreign Currency Accounts

1. Who can open RFCD accounts, NFCD accounts, ERQ accounts and NITA?
Answer:
RFCD: Bangladeshis resident return from abroad
NFCD: Non-resident Bangladesh nationals and Person who have dual nationality and
ordinarily residing abroad.
ERW: Any BASIS Member, aged 18 and above, earning Foreign Currency (FCY)
through Outsourcing (in non-physical form) from abroad.
NITA:
 Bangladeshi passport holders who are residing/working abroad.
 Foreign passport holders with Bangladeshi origin.
 Foreign individuals.
 Foreign institutions.
2. What are the rules associated with Foreign Remittances in Bangladesh?
Answer:
 The term ‘Inward Remittances’ includes remittance by TT, MT, Drafts, Purchase of bills,
drafts, Traveler's cheques and foreign currency notes and coins, Cheques issued on foreign
banks in favor of beneficiaries in Bangladesh etc.
 The ADs are able to freely buy foreign money; Remittances above $10,000 USD or the
equivalent must be reported on Form C, which is attached to the relevant schedule.
 Declaration on Form C by the beneficiary is not required against remittances sent by
Bangladesh nationals working abroad
 The purpose of remittances should be clearly stated on the Form C.
 Foreign currency notes, coins, and T.C.s may only be freely purchased from arriving
passengers by authorized dealers and moneychangers, regardless of the passengers'
nationality or the presence or absence of a declaration on Form FMJ at the time of
encashment;
 The ADs may also purchase foreign currency notes, coins and other travel instruments
freely from Authorized moneychangers without the production of Form FMJ.
 Incoming passengers may bring in any amount of foreign exchange with declaration in
FMJ at the time of arrival
 For amounts under $10,000, no declaration is required
 For non-residents, the full amount brought in with a declaration or up to $10,000 brought
in without a declaration may be took away at the time of departure or deposited in an NFCD
or F.C. account.
 Subject to the filing of Form FMJ for amounts over $10,000 or equivalent.
 According to Bangladesh Bank guidelines, ADs are allowed to sell foreign currency notes
and other items to other ADs and the general public in order to get rid of them. With the
Bangladesh Bank's approval, they may also send to agents or correspondents overseas for
credit to their foreign currency accounts.
 An AD may add foreign currency notes from overseas to their collection in addition to
regular purchases from the general public, licensed moneychangers, and other licensed
dealers, with permission from the Bangladesh Bank.

TRADE FINANCE AND FOREIGN EXCHANGE 1

Chapter 9: Foreign Remittance and Foreign Currency Accounts

3. What are the different foreign currency accounts allowed in Bangladesh?

Answer:
 Private Foreign Currency Account
 FC Accounts of Non-resident Bangladeshis
 FC Accounts of Diplomatic Bonded Warehouse
 FC accounts of local and joint venture contracting firms
 FC Accounts of resident Bangladesh nationals working with foreign/international
bodies
 Non-Resident Foreign Currency Deposit Account
 Resident Foreign Currency Deposit Account
 Exporters' Retention Quota (ERQ) Account
 Foreign Currency Accounts for the EPZ Companies
 Foreign Currency Accounts for Initial Public Offerings (IPO)
 Foreign Currency Accounts for Ship Builders (Exporters)
 Foreign Currency Accounts of shipping companies, airlines and freight
forwarders
 Convertible and Non-Convertible Taka Accounts
 Private Non-Resident Taka Accounts
 Non-Resident Blocked Taka Accounts
 Non-Resident Investor's Taka Accounts (NITA)

4. What is ERQ Account?

Answer: Export Retention Quota Account (ERQ), Exporters can open an ERQ account if they wish
to keep a portion of their export earnings in foreign currency. The exporters may use the funds in
these accounts for legitimate business needs, such as business visits abroad, participation in export
fairs and seminars, establishment and maintenance of offices abroad, import of raw materials,
machinery and spares, repayment of authorized foreign loan etc.

5. Write a note on RFCD account.

Answer: Resident Foreign Currency Deposit Account (RFCD), Persons ordinarily resident in
Bangladesh may open RFCD account with foreign exchange brought in at the time of their return
from travel abroad. Any amount brought in with declaration to Customs Authorities in form FMJ
and up to USD 5000(five thousand) brought in without any declaration, can be credited to such
accounts. However, proceeds of export of goods or services from Bangladesh or commission
arising from business deals in Bangladesh shall not be credited to such accounts. Balances in these
accounts shall be freely transferable abroad. These accounts may be opened in US Dollar, Pound
Sterling Euro or Japanese Yen and may be maintained as long as the account holders desire. If
deposits into these accounts are made for a minimum of one month and the balance is at least USD
1000 (one thousand) or Pound Sterling 500 (five hundred) or its equivalent, interest in foreign
exchange will be paid on balances in these accounts.

TRADE FINANCE AND FOREIGN EXCHANGE 2

Chapter 9: Foreign Remittance and Foreign Currency Accounts

6. Do you think extending inflow of wage earners remitting through mobile

financial service (MFS) will have positive impact to the economy?
Answer: Extending the inflow of wage earners remitting through mobile financial services (MFS)
can indeed have several positive impacts on the economy. Here are some potential benefits:

 Financial Inclusion: MFS provides a convenient and accessible platform for wage earners,
including those in remote areas, to access financial services.
 Cost-Efficiency: Remittances through MFS can be more cost-effective compared to
traditional methods, such as bank transfers or money transfer operators.
 Faster Transactions: MFS transactions are often processed more quickly than traditional
methods.
 Economic Stimulus: The influx of remittances can stimulate local economies by boosting
consumer spending.
 Reduced Informal Channels: Extending the use of MFS for remittances may help reduce
reliance on informal and potentially unregulated channels, promoting transparency and
compliance with regulatory frameworks.
 Technology Adoption: Encouraging the use of MFS for remittances fosters technology
adoption, which is crucial in the modern economy.

However, it's essential to consider potential challenges such as cybersecurity risks, the need for
proper regulation, and ensuring that the infrastructure and education are in place for widespread
adoption. Overall, leveraging mobile financial services for remittances can be a positive step
toward economic development, financial inclusion, and enhanced efficiency in financial
transactions.

TRADE FINANCE AND FOREIGN EXCHANGE 3

 ABSTRACT
Challenges Associated with Trade Services-
Global Context, Trade Based Money Laundering- A
Growing Concern, Challenges and Fraudulent
Activities of Trade Services in Bangladesh- Cases

MALPRACTICES IN AIBB
TARDE AND FOREIGN Associate of the Institute Of Bankers, Bangladesh

EXCHANGE
Chapter Ten
Chapter 10: Malpractices in Tarde and Foreign Exchange

1. What are the major challenges of Trade services in the globe?

Answer: The major challenges of Trade services in the globe are given below:
 Huge Surge in Freight Charge: If container freight rates continue to surge, global import
price levels could increase by 11% between now and 2023, while consumer price levels
could rise by 1.5%
 Trade Finance Gap Worsened for SMEs: The widening gap underscores the persistent
challenges that small and medium-sized enterprises (SMEs) face in accessing trade finance,
further exacerbating economic disparities.
 Trade Based Money Laundering Reshaped: By manipulating export and import prices,
a money launderer can overstate or understate the quantity of goods being shipped or
services being provided.
 High and Growing Regulation and compliance requirements and Capacity Divide:
Increasing regulatory and compliance requirements will decrease in the trade finance
businesses.
 Digital Divide: The implementation of digital solutions also faces challenges, as only 17%
of respondents have successfully implemented these solutions, and one in five banks has
not yet seen tangible benefits.
 Inadequacy of the Supportive Regulation for Tarde Digitization: Financial institutions
and banks around the world highlights the problem of regulatory barriers to growth; almost
half of the respondents believe regulations are holding back innovation
2. Elaborate key trade related frauds in the context of Bangladesh.
Answer: key characteristics of the international trade system have made it both attractive and
vulnerable to illicit exploitation; and vulnerabilities include the following:
 The massive volume of trade flows, which masks individual transactions and gives
criminal groups plenty of chances to move money across borders.
 The complexity involved in foreign exchange transactions and the use of various
financing arrangements.
 The extra complexity that may result from the practice of combining illegal funds with
the payments made by respectable businesses.
 The limited recourse to verification procedures or programs to exchange customs data
between countries.
 The limited resources that most customs agencies have available to detect illegal trade
transactions

Detection of TBML is relatively difficult since volumes of trade flows are massive and because
TBML can take complicated forms. FATF has published two separate guidance papers to
address concerns related to TBML. A related paper was published by the Asia/Pacific Group
(APG) on Money Laundering, which is a FATF-style regional body for the Asia-Pacific region.
Several other international organizations are working to support emerging economies to
address TBML.

TRADE FINANCE AND FOREIGN EXCHANGE 1

Chapter 10: Malpractices in Tarde and Foreign Exchange

3. Discuss TBML in the context of Bangladesh.

Answer: Trade-Based Money Laundering (TBML) refers to the process of disguising the proceeds
of crime and moving value through the use of trade transactions. In the context of Bangladesh,
TBML poses significant challenges and risks due to the country's substantial reliance on
international trade and a complex trade finance environment. Several factors contribute to the
vulnerability of Bangladesh to TBML:

 High Trade Dependency: Bangladesh has a robust export-oriented economy, with

garments and textiles being major contributors. The high volume of international trade
transactions increases the risk of criminals exploiting trade channels for money laundering.
 Informal Trade Practices: Informal or undocumented trade practices can make it
challenging to monitor and regulate trade transactions effectively. This informal sector
provides opportunities for illicit actors to engage in TBML activities.
 Complex Trade Finance Structures: The complexity of trade finance structures,
including the widespread use of letters of credit, can be exploited by money launderers.
Criminals may manipulate invoices, overstate or understate the value of goods, or engage
in other fraudulent activities within the trade finance process.
 Cross-Border Challenges: Bangladesh's geographical location and its proximity to
regions with higher levels of financial crime can make it susceptible to cross-border TBML
activities. Criminals may exploit weak regulatory frameworks in neighboring countries for
illicit financial activities.
 Limited Regulatory Oversight: Despite efforts to strengthen anti-money laundering
(AML) and counter-terrorist financing (CTF) measures, regulatory oversight in
Bangladesh may face challenges, and enforcement can be uneven. Enhancing regulatory
capabilities and coordination is crucial for combating TBML effectively.

To address these challenges and mitigate the risks associated with TBML, Bangladesh has been
working on strengthening its legal and regulatory framework. This includes improvements in AML
and CTF regulations, increased collaboration with international organizations, and efforts to
enhance the capacity of regulatory bodies.

However, ongoing vigilance, continuous improvement of regulatory mechanisms, and

international cooperation are essential for effectively combating TBML in Bangladesh.
Strengthening the monitoring of trade transactions, enhancing information-sharing mechanisms,
and promoting transparency in trade finance processes are crucial steps to mitigate the risks
associated with TBML in the country.

TRADE FINANCE AND FOREIGN EXCHANGE 2

Chapter 10: Malpractices in Tarde and Foreign Exchange

4. Write a note on Compliance challenges in trade services in Bangladesh.

Answer: Compliance challenges in trade services in Bangladesh encompass a range of issues
related to adherence to regulations and international standards, particularly in the context of trade
finance. Some notable challenges include:

 Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF): Ensuring

compliance with AML and CTF regulations is a significant challenge. The dynamic nature
of money laundering and terrorism financing schemes requires constant vigilance and
updates to compliance procedures.
 Trade-Based Money Laundering (TBML): Bangladesh faces challenges related to
TBML due to its substantial reliance on international trade. Criminals may exploit trade
transactions for money laundering purposes, necessitating robust monitoring and
preventive measures.
 Documentation and Verification: Trade transactions involve a plethora of documents,
and ensuring the accuracy and authenticity of these documents is a persistent challenge.
Fraudulent practices, such as forged invoices or bills of lading, can undermine compliance
efforts.
 Know Your Customer (KYC): Conducting thorough and effective KYC procedures is
crucial for identifying and mitigating risks associated with trade services. Challenges may
arise from incomplete or inaccurate information, especially in cases involving complex
supply chains.
 Sanctions Compliance: Adhering to international sanctions regimes poses challenges for
trade services in Bangladesh. Ensuring that transactions do not involve sanctioned entities
or countries requires continuous monitoring and updated knowledge of global sanctions
lists.
 Data Security and Privacy: Protecting sensitive trade and financial information is
essential for compliance. Ensuring the security and privacy of customer data, transaction
details, and other critical information is a challenge, given the evolving landscape of
cybersecurity threats.
 Regulatory Coordination: Achieving effective coordination among various regulatory
bodies involved in trade services is a challenge. Streamlining regulatory processes and
enhancing communication can facilitate more efficient compliance management.
 Capacity Building: Enhancing the capacity of financial institutions and regulatory bodies
to keep pace with evolving compliance requirements is an ongoing challenge. Continuous
training and education are essential to equip professionals with the knowledge and skills
necessary for effective compliance.

Addressing these challenges requires a comprehensive approach involving regulatory reforms,

technological advancements, capacity building, and international cooperation. Bangladesh has
taken steps to strengthen its regulatory framework, but ongoing efforts are necessary to stay ahead
of emerging threats and ensure the resilience of trade services in the face of evolving compliance
challenges.

TRADE FINANCE AND FOREIGN EXCHANGE 3