Fex Questions and Answers

Fex Questions and Answers

Question:1.What is Foreign Exchange and Foreign Trade?

Question:2. What is AD? What Types of AD license? State their main function of AD license?

Question:3. What documents required to open BB L/C?

Question:4. What are the Bad terms of Export L.C?

Question:5. What is Bonded ware house?

Question:6. What is Pre-shipment Investment?

Question:7. What do you mean by OD Sight, TT Doc, TT Clean and BC Selling exchange.                                        

Question:8. State all Incoterms with full meaning.

Question: 9. How many days are allowed for examination of documents as per UCP 600.  

Question: 10. Name the different types of Transport document.    

Question: 11. What is complying presentation?

Question: 12. Who can sign a Bill of Lading?        

Question: 13. To amend documentary credit which Parties consent is needed  ?                                                                                                                                                                        

Question: 14. How to prepare voucher for a) Lodgement  b) Retirement?        

Question: 15. What are the different types of risks in international trade?

Question: 16. What are the basis to scrutiny of import documents?

Question: 17. What are the cause of Garments Industry Sickness?

Question: 18. Who are the parties in letter of Credit?

Question: 19. What types of letter of Credit?

Question: 20. What are the characteristics of Multimodal transport documents?

Question: 21. What are the characteristics of Charter party Bill of lading?

Question: 22. What are the procedure of transfer of Export LC?

Question: 23. What do you mean by Back to back LC?

Question: 24. State the reasons for an amendment of LC?

Question: 25. Generally the import bills consist of which documents?

                                                                              

FERA-Foreign Exchange Regulation Act.

LCAF- Letter of Credit Authorization Form

AD- Authorized Dealer

ACU- Asian Clearing Union

EXW    Ex works

FCA    Free carrier

FAS     Free alongside ship

FOB    Free on bord

CFR    Cost and freight

CIF      Cost,insurance and freight

CPT     Carriage paid to

CIP      Carriage and insurance paid to

DAP    Delivered at place

DAT    Delivered at terminal

DDP    Delivered duty paid

UCPDC -Uniform Customs and Practice for Documentary Credits 600

H.S.code- Harmonized System Code

SRO-Statutory Regulatory Order

ITC-Import Trade Control

IPO- Import policy Order

ISBP- International Standard Banking Practice

CCI&E-Chief Controller of Imports and Exports

EDF- Export Development Fund

UPAS- Usance Payable At Sight

URC- Uniform Rules For Collection

URR- Uniform Rules for Bank-to-Bank Reimbursements

GFET- Guidelines for Foreign Exchange Transactions

GSP- Generalised System of preferences (GSP)

Question:1.What is Foreign Exchange and Foreign Trade?

Ans:

Foreign exchange is the exchange of one currency for another or the conversion of one currency into another currency. Foreign exchange also refers to the global market where currencies are traded virtually around the clock.

What is the meaning of foreign trade?

Foreign trade is exchange of capital, goods, and services across international borders or territories. In most countries, it represents a significant share of gross domestic product (GDP).

Question:2. What is AD? What Types of AD license? State their main function of AD license?

Ans: AD means Authorised Dealer.

Question:3. What documents required to open BB L/C?

Ans:

Ans: Papers Required for B.B.L/C:

1.      Valid Trade Licence.

2.      Valid IRC & ERC.

3.      Valid Bonded warehouses Licence.

4.      Proof of Factory & signboard of the Factory.

5.      Income Tax Certificate ( TIN )

6.      Membership Certificate.

7.      Photo graph of the Party (Directors)

8.      Resolution of the Board (if any).

9.      Article & Memorandum of Association (for Ltd Co).

10.  Statement of Assets & liabilities of the Firm (for Ltd Co).

11.  Three years Audit Report of the Firm.

12.  Partnership Deed (if need).

13.  Credit report on the party.

14.  Confidential Report on the Foreign Supplier.

15.  Collateral Security.

16.  Charge Documents.

17.  Insurance Cover Note along with money receipt.

18.  Undertaking to arrange foreign currency for payment.

19.  Agreement to sale of Goods under BAIM WES Bill A/C.

20.  Guarantee about the presence of the Inspector at the time of export.

21.  Letter of disclaimer taken if the Garments Factory is in rented building.

22.  Bai- Muazzal/Murabaha / Musharaka Agreement.

Question:4. What are the Bad terms of Export L.C?

Ans: Bad terms of Export L.C

Sl.	Bad terms	L.C should be
01	Negotiation restricted	Should be freely negotiable
02	Expiry out side Bangladesh	Expiry should be in Bangladesh
03	Document to be presented for negotiation	Document to be presented for negotiation in Bangladesh
04	B. L to the order of opening	Should be order of negotiating bank & endorsed favour opening bank
05	Blank endorsement in B. L	Blank endorsement is accepted as per Export Control Regulation (ECR).
06	Air way Bill to the order of applicant	Should be to the order of bank.
07	Payment term is not clear	Payment term must be clear & specific

Question:5. What is Bonded warehouse?

Ans: Bonded Ware House:

A bonded warehouse is a Custom’s godown where bonded goods are stored. Bonded Ware House Licence is issued by Custom Authority to the manufacturer of exportable goods under certain terms and conditions. Imported goods are stored in the bonded warehouse without payment of duty and taxes on the first importation and subsequent exportation of finished goods. License is renewable every year.

Question: 6. What is Pre-shipment Investment?

Ans: Pre-shipment Investment

Preshipment investment is required by the exporter for procurement of goods, processing of raw materials, packing, bailing & transporting goods from godown / factory to the port of shipment, payment of freight, inspection & other charges including export duty, vat etc where necessary.

Preshipment investment is essentially a short-term investment & it is liquidated by negotiation / purchase of export bills covering goods for which investment was given required.

Preshipmenmt investments are in most cases granted against irrevocable/ confirmed / unrestricted  L/C or firm contract received by the exporter from overseas buyer.

The credit worthiness & reputation of the foreign buyer needs to be ascertained before extending such investments.

Kinds of Preshipment investment

(a)        Musharaka preshipment Finance:

Investments granted are covered by firm export orders or letters of credit received from abroad established by international banks of good standing and / or bank regular correspondents duly authenticated.

(b)       Baimuazzal investment

It is a contract in which a client wishing to purchase raw materials, finished goods, commodities, spares, machinery, equipments or any other goods request the bank to produce the items & sell them to him at a price –payable at a future date in lump sum or in installment.

Precaution to be taken before sanctioning Preshipment Investment

i.. Credit worthiness of the exporter should be properly assessed by preparing credit report in bank’s prescribed proforma. Past export performance & behavior of the exporter should be verified from bank’s records & financial statements.

ii. Credit worthiness & solvency of the foreign buyer should be verified through foreign correspondents.

iii. Period for which the investment is sanctioned should be clearly mentioned in the sanction advice.

iv. Charge documents as well as other documents mentioned in the sanction advice should be obtained & got properly executed by the client

Question:7. What do you mean by OD Sight, TT Doc, TT Clean and BC Selling exchange. 

Ans: Quoting Rate in Bangladesh  At present in Bangladesh direct rates are quoted.

Selling Rate

A. Clean Sale ( T. T. and O. D. )

B. C. Sale

a. T.T and O.D ( Telegraphic Transfer and On Demand ) Rate

The TT selling rate, which is the finest rate is used for clean sales. OD (on  demand) rate is applied for issuance of Demand Draft, Cheque, TT, MT etc. in Bangladesh same rate is quoted for TT selling and OD selling rate.

b. B. C. ( Bills for Collection ) Selling Rate

B.C. selling rate is applied against import which required some extra work for bank to handle of the import documents. The extra work arises from scrutiny of documents and collection of bills. So bank quotes slightly higher rate for sale of foreign currency against imports, regardless whether it is covered by a letter of credit or not. The rate used for this purpose is known as B.C. rate ( Bills for collection rate ). B.C. selling rate is applied for sale transactions against import documents, irrespective of whether the remittance is effected by TT , Airmail Transfer, Draft or Bill of exchange.

Buying Rate

TT Buying Rate

(i) TT Clean

(ii)TT (DOC)

OD Buying Rate

a)OD (Sight)

b)OD (Transfer)

i) TT Clean This rate is applicable for purchase of TTS or any other clean  instrument where no interest  profit factor is involved i.e. DD, MT against  which fund has already been covered by the issuing  bank.

ii) TT (DOC)  This rate is applicable for the instruction to pay a sum of  money to a certain person on presentation of some documents ( invoice, bill of lading, bill of exchange etc. ), which makes a documentary transaction.

Due to handling of some documents, banks recover handling charge on the transaction. Due to handling of some documents, banks recover handling charges on the transaction.

OD Buying Rate:

OD buying rates are quoted for the transaction of purchase of Demand Drafts ( Bill of Exchange ) on sight bills. In purchasing a draft of this nature,the bank makes the payment immediately,but is reimbursed at the foreign centre after some days where draft documents are paid buy the drawee.

In Bangladesh OD (Sight ) rates are applied for the exporter and OD (Transfer)rates applied for the purchase of DD,TC, MT, Personal cheques etc (if fund is not covered by the issuing bank ).

Question:8. State all Incoterms with full meaning.

Ans:

EXW-Ex works

FCA - Free carrier

FAS -Free alongside ship

FOB- Free on bord

CFR- Cost and freight

CIF  - Cost, Insurance and freight

CPT - Carriage paid to

CIP-  Carriage and insurance paid to

DAP- Delivered at place

DAT- Delivered at terminal

DDP- Delivered duty paid

Question: 9. How many days are allowed for examination of documents as per UCP 600.  

Ans: Five banking /working( as per international rule) days.

Question: 10. Name the different types of Transport document.    

Ans: As per UCPDC there are seven types of transport documents such as i)Multimodal transport documents, ii) Bill of lading, iii) Non negotiable Sea way bill, iv) Charter party bill of lading, v) Road, Rail and inland water way transport document, vi)  Air way bill, vii) Courier Receipt, Post Receipt or Certificate of Posting.

Question: 11. What is complying presentation?

Ans: Complying presentation means a presentation that is in accordance with the

terms and conditions of the credit, the applicable provisions of these rules and international standard

banking practice.(Article 15 of UCP-600)

Question: 12. Who can sign a Bill of Lading?

Ans: A bill of lading signed by the master or his representative of the ship carrying the goods.

Question: 13. To amend documentary credit which Parties consent is needed?     

Ans:                                                                                                                                                                  

Question: 14. How to prepare voucher for a) Lodgement  b) Retirement?        

Question: 15. What are the different types of risks in international trade?

Ans: Any person dealing in foreign exchange business must familiar with the risks involved.Some of the risks are peculiar to foreign exchange business, while some of them are on par with inland banking.

A.    Risks which are common to inland and foreign business:

1.      Risk of non payment

2.      Risk of non delivery of goods

3.      Risk of receiving sub-standard goods

4.      Risks of fraud in goods

B.     Risks peculiar to foreign exchange business

1.      Exchange risk

2.      Failure of Foreign banks

3.      Sudden change in policies

4.      Country risk

5.      Interest risk

6.      Liquidity risk

7.      Payment risk

Question: 16. What are the basis to scrutiny of import documents?

Ans:

1.      Letter credit terms and conditions

2.      USPDC 600

3.      ISBP 745

4.      Import Policy 2015-2018

5.      GFET Volume-1

6.      Instruction issued by the Government by official gadget.

Question: 17. What are the cause of Garments Industry Sickness?

Ans:

01.	Uneconomic size/ Imbalance Factory	Due to unplanned machinery import, part of machinery remain idle & rest of them does not work efficiently. The factory cannot survive for long.
02.	Situational Disadvantages	Inaccessible location, non-availability of workers, wage is high, movement of material is uneconomical.
03.	Poor Management	A factory with unplanned / poor management can hardly make profit.
04.	Poor Technical knowledge	Factory should be equipped with proper technical persons & owner should have minimum technical knowledge of the items they deal, unless factory cannot fulfill the need of the buyer.
05.	Poor Labor management	Factory fails to get the work done at an optimum efficiency with its work force by good labour management.
06.	Lack of Owner’s Experience	Garments Industry is a very much technical, which involves imports/ exports along with international trade, so experience of owner is a vital factor.
07.	Lack of Owner’s Earnestness	Factory requires proper planning & unless the owners are adequately earnest to their activities, the industry may gradually become sick.
08.	Excessive number of Owners	Excessive number of owners causes excessive overhead cost & difference of opinion among them selves causes sickness.
09.	Dispute among Owners	In absence of unity among the owners for common purposes of the factory’s welfare, it is to become ineffective & sick.
10.	Un-resourceful Owners	The owners utilize them for own cause rather for productive purposes, discontentment is bound to generate, breeding falloff efficiency culminating sickness.
11.	Unimaginative Owners	Owners fail to engage proper men in proper places & are less tactful in managing the affairs; the factory cannot run well for long & bound to become sick.
12.	Unhealthy market competition	Unhealthy market competition & procurement of uneconomic & excessive orders.
13.	Banker’s Impression & Credit Facilities	The banker’s open-heart cooperation& smooth financial assistance are the prerequisites for the success of garments factory.
14.	Factory’s Impression  to Bank	The units must be able to impress the bankers by their honesty, performance & integrity, so the banker can extend credit facility with in permissible limit
15	Stock Lot	Stock lot is a common affair & while chronic it is a cancer. The fate of Garments Industry depends on the successful disposal of stock lot once created.

Question: 18. Who are the parties in letter of Credit?

Ans:

1.    Issuing bank (or opening bank)                       5. Nominated bank

2.    Beneficiary (or seller, or exporter)                  6. Reimbursing bank

3.    Advising bank                                                 7. Second advising bank

4.    Confirming bank                                             8. Transferring bank

Question: 19. What types of letter of Credit?

Ans:

1.      Commercial Letter of Credit              8. Clean Letters of Credit

2.      Revocable Letters of Credit                9. Transferable Letters of Credit

3.      Irrevocable Letters of Credit              10. Back-to-Back Letters of Credit

4.      Payment at Sight Letter of Credit      11. Advance Payment (Red Clause) Letters  

                                                                             of Credit

5.      Deferred Payment Letter of Credit    12. Green Clause Letter of Credit

6.      Unconfirmed Letters of Credit           13. Revolving Letter of Credit

7.      Confirmed Letters of Credit               14. Standby Letters of Credit 

Question: 20. What are the general facilities for export as per export policy 2015-2018

Ans:

1.      Retention Quota Facility

2.      Export Promotion Fund (EPF)

3.      Cash Incentives & other benefits

4.      Export Development Fund(EDF)

5.      Export Finance at reduced RR

6.      Bond facility

7.      Training by EPB

8.      Trade Fare

9.      Deemed Exporter facility

10.  MIS & Information facility

11.  Commodity wise different facility

Question: 21. What are the characteristics of Charter party Bill of lading?

Ans: 1) Negotiability subject to charter party

         2) Title to goods subject to charter party

         3) Delivery in terms of charter party

Question: 22. What are the procedure of transfer of Export LC?

Ans: A transferable letter of credit is a documentary credit under which the beneficiary (1^st beneficiary) may request the bank specifically authorize to transfer the credit available in which or partially, to one or more second beneficiary (s) (Exporter).

The LC can be transferred only in accordance with the terms & conditions stipulated in original

LC with the exception of the following:

1.      The LC amount

2.      The unit price of goods(is stated in the original LC)

3.      The time of shipment

4.      Last date for presentation of negotiation shipping documents

5.      Expiry date of LC

If all or part of the LC is transferred, the first beneficiary retains the right to substitute their own drafts and invoices for those of the second beneficiary, if they require.

Instruction must be provided on whether the bank is allowed to make any amendments the original LC to the second beneficiary.

How do apply for transferring of export letter of credit:

1.       First beneficiary  submit the application with signature of the company signatories and company stamp together with original LC

2.       Export LC (LC must be advised)

3.       Upon successful application/approval application for transfer LC will be processed.

4.       Transferring bank will forward to second beneficiary  along with signature of the authorized bank official signatories and stamp (The authorized officer should have to be verified the company’s signature with properly)

5.       As and when require amendment the advising bank should be sent subsequent amendment of the Export LC to the second beneficiary.

Question: 23. What do you mean by Back to back LC?

Ans: Back to Back LC is issued on behalf of a customer (Exporter or Seller) against the security of Export LCs (under lien) for procurement of raw materials either locally or from abroad and makes the goods against export order timely and ship the goods within stipulated period. Virtually Back to Back LC is one kind of import LC which is opened against lien of valid Export LCs.

The customer is entitled to open a BTB LC 75% out of 100% of FOB Value of the Export LC. More than one BTB import LC can be issued against one or more Export LCs.

Question: 24. State the reasons for an amendment of LC?

Ans: 1) To increase or decrease in amount of LC.

         2) Changes in the dates of shipment

         3) Change in the date of negotiation

         4) Changes in merchandise and other terms of the credit

Question: 25. Generally the import bills consist of which documents?

Ans:

1.      Bill of Exchange

2.      Commercial Invoice

3.      Bill of Lading/ Other transport documents

4.      Other documents ( e.g. Certificate of origin, Certificates, packing List, Weight List etc.)