Assignment Code: IBO-04/TMA/2022-23

Course Code: IBO-04

Assignment Name: Export Import Procedure and Documentation

Year: 2022-2023

Verification Status: Verified by Professor

Attempt all the questions: 20x5

Q1) (a) What do you mean by pre-shipment finance? Enumerate the methods of pre-shipment finance. Describe the procedure of pre-shipment credit in foreign currency.

Ans) A particular credit or loan provided by banks to exporters in exchange for a shipment of products transported to foreign customers is known as post-shipment financing. Since exporters don't wait for importers to put money down against a big cargo, they frequently ask for help with post-shipment financing and options for realising export revenues. The exporters are given pre-shipment financing for the acquisition of raw materials, their processing, and their finalisation into finished items for export.

Methods of Pre-Shipment Finance

1. Extended Packing Credit Loan: Customers with a solid credit history can apply for Extended Packing Credit loans from banks. The repayment time is longer than the typical 180 days.

2. Secured Shipping Loans: When the finished product has been made and is prepared for shipment, exporters may apply for this loan.

3. Advances against Back-to-Back Letter of Credit: In exchange for a back-to-back LC, banks offer an exporter this form of packing credit.

4. Red or Green Clause Letter of Credit: A sort of packaging credit known as a "Red Clause LC" is offered by banks when a supplier neglects to set aside enough money for producing the items for the export order. The supplier signs a Red Clause LC, authorising the bank to pay the supplier the amount required to satisfy his working capital need. This clause is typed in red.

5. Advances against Export Incentives: Both pre-shipment and post-shipment export incentives are offered. An exporter receives a credit from the bank against future incentives that they may be qualified to receive. The exporter pays the lending bank the repayment after receiving the incentives.

Pre-shipment Credit in Foreign Currency

The rupee packaging credit system has a new window. This credit can be used to pay for both domestic and foreign components of goods exported from India. The service is offered in all convertible currencies. Due to the self-liquidating nature of the credit, once the products have been sent, the bills may be discounted, rediscounted, or be eligible for a post-shipment credit in a foreign currency.

The following two options are available to exporters for this financing:

1. Pre-shipment credit in rupees, followed by post-shipment credit in rupees, credit in foreign currency, or discounting or rediscounting of export bills are all options available to exporters.

2. The exporters are eligible to get pre-shipment credit in foreign currency and the ability to discount or rediscount their export bills.

Q1) (b) What is post-shipment finance? Explain various methods of post-shipment finance.

Ans) It can be described as any loan, advance, or other kind of credit given by a bank to an exporter of products from India between the date the credit was extended following the shipment of the items and the date the export proceeds were realised. It includes any loan or advance given to an exporter in exchange for, or as collateral for, any duty drawbacks or other government incentives in the form of cash receivables.

Post-shipment financing is provided in a number of ways. Depending on his needs, the exporter may select a certain sort of facility. The Banks carefully examine submitted documents to ensure they comply with exchange control regulations like:

1. Payment Receivable is a permissible method of payment, and the documents are drawn in approved currencies.

2. The appropriate GRI PP form, fully certified by customs, is submitted, and the information listed therein matches that in the documents offered, including the sale contract1, firm order, letter of credit, etc.

3. The documents are submitted within the allotted time frame, and any delays are properly justified.

4. The time period of use is consistent with the deadline set for realising export revenues.

Method of Post-Shipment Credit

1. Export Bills Purchased/Discounted/Negotiated: In the first two situations, the exporter provides the bank with the relevant export documentation, including the commercial invoice, packing list, certificate of origin, purchase order, and bill of lading or airway bill. The bank buys or discounts these invoices, and then extends post-shipment credit at a reduced interest rate.

2. Advances Against Bills for Collection: The exporter may arrange for the export bills to be submitted to the foreign buyer for payment collection rather than submitting them for discount or purchase.

3. Advances Against Duty Drawback Receivable from Government: Duty drawback is a government programme in India that encourages exports by giving exporters a discount on customs and excise charges assessed on imported or excisable materials used in the production of goods intended for export.

4. Advance Against Export on Consignment Basis: Banks provide post-shipment credit for exports that are made on a consignment basis, in which the exporter ships the products to an agent who sells them and sends the proceeds back to the exporter as the commodities are sold.

5. Advance Against Undrawn Balance: Exporters occasionally save a modest sum from the invoice value for last-minute adjustments for variations in currency rates, shipment weight, quality issues, etc.

Q2) (a) What do you understand by letter of credit? Briefly explain various kinds of letter of credit.

Ans) A letter of credit, sometimes referred to as a credit letter, is a statement provided by a bank or other financial institution that assures the payment of a certain amount in a business transaction. An impartial third party is involved in the process, which is significant. The issuing bank guarantees in a letter of credit that a buyer will pay for products or services promptly and in full. The issuing bank behind the letter of credit promises to pay the remaining unpaid sum, up to and including the full purchase price, if the buyer fails to make prompt and complete payment.

Different Kinds of Letter of Credit

Letters of credit come in a variety of forms as follows:

1. Revocable and Irrevocable Letters of Credit: A revocable letter of credit gives the issuing bank the option to change or cancel the credit.

2. Confirmed Letter of Credit: This means that by including its confirmation, a banker other than the originating banker now accepts responsibility for payment.

3. Credits with Restrictions: This means that the issuing bank may limit credit negotiations to a specific bank.

4. Revolving Credit: In this arrangement, the seller arranges for ongoing, routine shipments.

5. Red Clause Letter of Credit: This transaction resembles pre-shipment financing provided by the buyer to the seller. The beneficiary is thus entitled to draw an advance against shipment thanks to this credit.

6. Transferable Letter of Credit: Credit that is transferrable permits the beneficiary to make it entirely or partially available to one or more third parties. Only if the credit expressly specifies that it is "transferable" is this possible.

7. Back-to-Back Letter of Credit: The actual supplier of the products may not be the recipient of an irrevocable letter of credit.

8. Payment Credit: This credit will be paid at sight after the required paperwork is shown to the approved paying bank. Beneficiary may or may not be required to draw a draught in a payment credit.

Q2) (b) Give the details of the various documents required under the letter of credit.

Ans) In credit operations, all parties involved deal in papers and not in any commodities, services, or other performances to which the documents may be related, as per Article 4 of the Uniform Customs and Practice for Documentary Credit. Therefore, it is essential that the beneficiary submits documentation that are in line with the letter of credit's specifications. The typical papers mentioned in letters of credit are as follows:

1. Bill of Exchange: It is all a tool that one person draws on another, instructing him to pay to or follow the drawer's order. The payee, who may be the drawer himself or a third party, is the individual to whom payment is to be made.

2. Commercial Invoice: It is a content document. It includes information on the items sold, the cost, and any additional fees that may be the buyer's responsibility. If the seller offers any discounts, that information is also shown. A properly filled-out commercial invoice should be in accordance with the sale contract.

3. Packing List: This provides information about each package that was shipped to the customer.

4. Transport Documents: All letters of credit insist on the submission of documentary evidence in support of the exporter's claim that the items have been dispatched because shipment is the most important requirement for payment. In the event that items are shipped through a sea vessel, the shipping firm issues a bill of lading.

5. Inspection Certificate: An Inspection Certificate is necessary for all letters of credit since the goods must adhere to established quality standards. The Inspection Certificate is required as documentation that the items were examined by an accredited public or private organisation.

6. Insurance Policy Certificate: An insurance policy is a formal record of an insurance agreement that includes comprehensive information on the risks covered.

Q3) Distinguish between: (4x5)

a) Domestic Sales Contract and Export Sales Contract

Ans) Finding the right law to govern an export contract is a key factor in differentiating it from a domestic deal. For domestic sales contracts, this is not a problem because Indian law will always be the appropriate legislation in India. As far as their domestic transactions are concerned, it will be according to each nation's specific national regulations.

Although this is a highly complicated issue, the general rule is that the parties to the contract may mutually agree as to which country's laws should apply. The nation of choice must be either the exporting or importing nation. In exceptional situations, the law of a third nation may be chosen, provided that the country has some connection to the contract.

b) Consular Invoice and Customs Invoice

Ans)

c) Revocable and Irrevocable letters of credit

Ans) Revocable LCs are credits that can have their terms and conditions changed or revoked by the issuing bank. The recipients will not be informed in advance of this termination. An irreversible credit is one whose terms and conditions cannot be changed or revoked. As a result, the LC's stated pledges bind the opening bank.

d) Insurance policy and Insurance Certificate

Ans) The phrases "insurance policy" and "insurance certificate" are distinct. The coverage plan that the insurer provides is known as an insurance policy. Your vehicle's insurance is attested to by the Certificate of Insurance. An insurance certificate is proof that the products have been protected under a master policy, whereas an insurance policy is an insurance contract with terms and conditions based on which the insured or the assignee can claim compensation from the insurer.

Q4) Comment on the following: (4x5)

a) “In export-import trade people are dealing in documents and not in goods.”

Ans) People all throughout the world value money above all else since it allows them to purchase virtually anything or anyone. In the beginning, individuals would trade goods for purchases. To obtain money or occasionally the secret knowledge of the country with which the trade is made, people nowadays exchange their countries' secrets with those of other nations. As a result, People do not exchange items in export-import trade; instead, they deal in paperwork.

b) “FOB contract is not different from CIF contract.”

Ans) Both CIF and FOB offer special advantages. Your unique circumstances will determine which one you select for your particular trade demands. Since each choice has certain benefits and drawbacks, neither is fundamentally superior to the other. A FOB agreement releases you from responsibility as the seller as soon as the goods leave the port of origin. You will spend less money with this arrangement, but your customer will pay slightly more. Additionally, it adds a lot of work to your plate because it means your task will be completed much sooner than otherwise.

Customer service is crucial to developing long-lasting relationships with customers, though. Although a CIF agreement is more expensive and time-consuming, it greatly simplifies the procedure for your customer. From the standpoint of the buyer, CIF is preferable when a "done for you" strategy is sought. Of course, choosing a CIF trade agreement also calls for certain financial pliability.

c) “Export Incentives are not a universal practice.”

Ans) Export incentives are programmes that are governed by regulations, laws, money, or taxes that are intended to promote companies to export particular goods or services. Exports are products that are manufactured in one nation and shipped to another nation for commerce or sale. Export incentives are programmes that are governed by regulations, laws, money, or taxes that are intended to promote companies to export particular goods or services.

Exports are products that are manufactured in one nation and shipped to another nation for commerce or sale. The economy of the exporting country depends heavily on exports, which raise the gross domestic product of that country. If the products open up new markets or extend ones that already exist, exports can increase a company's sales and earnings. They may also present an opportunity to increase a company's part of the worldwide market. As businesses expand and hire more people, exports also help to create jobs.

d) “RBI does not have a significant role in regulating payments of exports.”

Ans) The nation's Central Bank is the Reserve Bank of India. Due to its absence from routine micro- or macro-finance activities, the RBI's role differs from that of other banks. Instead, it is the Bankers' Bank that creates the monetary rules and regulations that all the banks in the nation must abide by.

The central bank of India is the Reserve Bank of India. It performs a variety of tasks, including managing foreign exchange, regulating monetary policy, issuing currency, acting as a bank of the government, and serving as a banker to scheduled commercial banks, among other things, to play a multifaceted role. Additionally, it aids in the nation's general economic expansion.

Q5) Write notes on the following: (4x5)

a) Marine Insurance Act, 1963

Ans) Marine insurance contracts are described as "agreements whereby the insurer commits to indemnify the assured in the manner and to the extent therefore agreed, against marine losses, that is, the losses attendant to marine adventure" under Article 3 of the Indian Marine Insurance Act, I963. Before going into detail on various parts of the marine insurance contract, it is important to realise that the word "marine" used in the definition has no particular meaning. Regardless of how the term is used, the definition's guiding principles for cargo insurance apply to all forms of transportation that are used to convey products.

b) EXIM Bank

Ans) International company has become more and more dependent on project exports, turnkey projects, and joint ventures, including the provision of complete plant and equipment or large machinery. The government of India founded the Export-Import Bank of India to provide the requisite credit-lines for the same after realising the export potential for India in this industry. The bank offers support in the form of venture capital, line of credit, buyers' credit, and sellers' credit. It enables Indian exporters to expand their project and turnkey job exports as well as joint ventures in foreign markets.

c) Current Account Transactions

Ans) If a sale or drawl of foreign currency is a current account transaction, anyone may do so to or from an authorised person; however, the Central Government may, in the public interest and in consultation with the Reserve Bank, impose any reasonable restrictions for current account transactions that may be prescribed.

d) Political Risk

Ans) Political risk includes:

1. Government action that could prevent or delay payment to the exporter, such as the imposing of remittance limits by the government of the buyer's nation.

2. Civil unrest, a war, or a revolution in the buyer's nation.

3. After the date of shipping or, if applicable, the contract, new import licencing limits or revocation of a valid import licence in the buyer's jurisdiction.

4. After the contract's effective date, India may revoke export licences or impose new export licencing limitations.

5. Payment of any additional handling, transportation, or insurance costs brought on by a trip stoppage or detour that cannot be recouped from the customer.

6. Any additional loss that arises outside of India, is not often covered by general insurance, and is out of the exporter's or buyer's control

The default will fall under the category of political risks if the buyer is a foreign government, or a government department and it refuses to pay.