IIBF & NISM Adda

Tuesday, 22 December 2020

New CAIIB ,JAIIB, &IIBF PDFs, recollected questions .

New CAIIB,JAIIB & IIBF PDFs and recollected questions .

READ MACMILLIAN ULTIMATE BOOK FOR EXAMS

All the best .. Utilize it properly

IIBF:

https://iibfadda.blogspot.com/2020/03/new-all-iibf-certifications-pdfs-in.html

https://iibfadda.blogspot.com/2020/01/single-link-for-recollected-questions.html

https://iibfadda.blogspot.com/search/label/Recollected%20Questions%20for%20%20all%20exams

Jaiib: PDFs

https://iibfadda.blogspot.com/2020/11/jaiib-exam-pdfs.html

https://iibfadda.blogspot.com/2020/05/single-link-for-jaiib-recollected.html

Caiib: PDFs

https://iibfadda.blogspot.com/2020/11/caiib-pdfs-and-recollected.html

https://iibfadda.blogspot.com/2019/05/caiib-single-link-for-all-recollected.html

NISM/NIBM:

https://drive.google.com/drive/folders/1RGXJQDOGBA8U6CAyWJ7oqwaYoh3r1a2l?usp=sharing

1.Not allocating sufficient amount of Study time daily:

This is a very common mistake done by many CAIIB aspirants, Cramming the information before the night of the exam or before two days may helped you in JAIIB examination (Although it is a wrong way of preparation). But here in CAIIB examination it won’t help you to even score thirty marks. A thorough understanding of concepts are needed for almost all topics so having a daily study routine is must for all aspirants.

I know it is very tough to find time during our busy banking hours. If you don’t have time for continuous 2 hrs then split the study hours into three or four sessions of 30 to 40 minutes a day. Since syllabus of CAIIB subjects cover many topics; In depth understanding of each topic is also needed to answer questions that test our knowledge, analytical skills and problem solving skills. So daily allocating sufficient amount of study time is necessary.

2.Not having clear focus on optional paper:

Selecting the correct optional paper and having clear focus on it, is must for successful completion of CAIIB exam. Although the Retail banking and Financial Banking are easy papers to clear, You need choose your optional paper based on your knowledge, interested areas in banking and career development. Don’t follow others recommendation for optional paper blindly. You have to analyse and decide your optional paper.

Remember CAIIB is not only for increments; it also provides many useful theoretical knowledge in different areas of banking.

3.Not learning the basic concepts:

Every topic of a subject has basic and fundamental concepts to be learnt by heart. Learning them thoroughly makes us to understand the more complex concepts. Complex concepts are nothing but complex combination of simple and basic concepts. We should have studied the fun1damental concepts in JAIIB (who knows it now ;P ;)). If not revise it then and there when it is required.

To learn the fundamental concepts of economy, business maths, accountancy you can refer more books from your commerce background friends. Remember learning complex concepts won’t be useful if you don’t understand the fundamental concepts behind them.

4.Not understanding and giving importance to syllabus:

In any examination if we want to pass that exam we should thoroughly understand the syllabus first. Because understanding the syllabus will give us a clear picture of what we are going to learn. We also get some insights about the subject. It also helps us to have an idea whether we are familiar with that topic or not. This will help you to assess the complexity of the subject and how much time you need to spend with a topic.

Give importance to syllabus helps to choose the right books for our preparation. Because there are materials that doesn’t cover the full syllabus (only the main areas of the syllabus) are available free in many study groups and websites. Aspirants who doesn’t aware of syllabus simply read those material and attend the exam.

5.Not having a preparation strategy and study plan

This is a common mistake many aspirants do, thinking there is no necessary for planning your study. They even think it is a waste of time. Whatever excuses we give, having a preparation strategy and study plan is must for any type of exam. It will help us to be goal oriented and stay focused of our target. If you do your targeted studies every day, it will make you motivated. As your progress through your schedule you will feel relaxed and your stress level for exam is reduced.

Creating a schedule will hardly take one to two hours of your time. While creating a schedule of your own you will also analyse the syllabus. There are many benefits can be pointed for having a good study plan. Though the initial effort may look too much; But the benefits are fruitful and long-lasting.

6.Not taking effective notes while studying itself

Many aspirants not even consider taking notes is a part of study. While studying if you take notes you will give importance to details. Giving importance to details will make you to ask more questions and to find short answers for it. This enhances your understanding about the topic. It also makes you to break down the contents of your learning in an easy way. Therefore your memory increases and whenever you see the notes you can recollect the content.

Thus taking notes helps you for better and easy revision. I know it is time consuming but once you are familiarised, it will be easy for you to take notes. Because your eyes can spot the important detail easily; Your mind organise them with an analogy for easy remembrance.

7.Not solving and practising mathematical problems:

Unlike JAIIB, here calculations, formulas and case studies are very important. You definitely need to solve all the problems in your study materials and work books you got. Don’t simply study a formula using one example of a problem related to it. Change the parameters and create problem of your own then solve it. By doing so, you will learn about importance of each parameter of the formula.

Practice, Practice, Practice!!!!!. There is no replacement for practising when solving problems, case studies and balance sheet analysis. When solving problems related to Balance sheet also use the same method as described above. There by we can improve our problem solving skills and analytical skills

8.Not revising the topics regularly:

Many aspirants ignore the importance of revising, stating there is no time for revising. If you are not making study plan you will not even find time to complete the syllabus. So no excuses, use your notes to revise the topic at regular intervals. For example every Sunday spare 20 to 30 minutes for revising, in addition to your study time.

“Revise little but often” is the key strategy. Repeated revision make you feel bored and gives a feeling “Ahh!!! I know it. Don’t need to study”. But it makes you to master a topic; If five questions are asked from a single topic for knowledge testing; You can answer all, with 100% accuracy.

9.Not learning from the mistakes:

The biggest and costliest thing is learning from your mistake. If you have failed in an attempt, accept the failure and analyse where you lacked. When I say accept your failure that doesn’t mean to blame yourself. It means asking yourself questions related to find the cause of the failure. What is the main reason for non completion of the syllabus? In which topic i should improve my knowledge? etc,. How can I improve my reading ability further?

The answer to the questions should not be too general. It should be specific to spot your weakness. When you find your weakness please work on it. Nobody is perfect in the universe; So find your weakness and mistakes; Try to rectify it before your next attempt.

10.Not using the technology for proper and effective preparation of exam:

Because of the technology we can study anything from anywhere. So use your mobile, internet, websites, facebook communities,forums and blogs etc,.You can get any information from internet in just a single click or a single press of your finger. I am not saying you to depend on them but to use them as effectively as possible. So do your search whatever you feel useful subscribe to them.

Also many websites offering free mock test use them to test your knowledge. While giving mock test take it as serious as an exam. Then only you can know your time management under pressure and boosts your confidence.

CAIIB ABM Strategy

ABM is one of the compulsory subjects for CAIIB. Most of the people find difficult to clear this paper. Today, I will tell you how to study for ABM subject.

This subject also contains 4 modules

MODULE – A: Economic Analysis

MODULE – B : Business Mathematics

MODULE – C : HRM in banks

MODULE – D : Credit Management

As we are bank employees we get very less time for study, so how to decide which topics to be read, which topics to be skipped?

-As I had told you in my previous blog article that generally paper consists of 60% theoretical & 40% numerical or case studies, so choose the module to be study in deep so as to clear the paper easily depending upon your personal strength and weakness.

If you observed all the modules, you will realize that Module A and Module C are most scoring modules. Do not skip these modules. Module B contains Business Mathematics which many people find difficult to study as the level of mathematics is tough, especially for non-engineering background people. Those who works in Credit/Loan Department will find that Module D easy as well as interesting. Module D is most important not only exam point of view but also for your daily working in Credit Department. So do not skip Module D.

IMPORTANT TOPICS FROM EACH MODULE

Module A- Supply and Demand, Money Supply and Inflation, Business Cycles, GDP Concepts and Union Budget.

No need to read McMillan Book line by line for thise module, short notes will be quite useful for studying this module. Don’t read stats given in these chapters. In GDP Concepts and Union Budget chapters numerical are asked which are quite easy provided you know the components and formula.

Module B-Time Value of Money, Sampling Methods, Simulation, Bond Investment

Don’t go to deep for study this module as mathematical calculations are difficult to understand especially for non engineering background people. Practice the examples given in McMillan. Those who are not good at math can skip this module and focus more on remaining modules.

Module C-Development of Human Resources, Human Implications of Organisations, Performamce Management, HR

You need to read thoroughly all the topics from this module from McMillan. It is quite easy and theoretical only. Repeatedly read MCQs from N.S. Toor book of this module.

Module D-Overview of Credit Management, Analysis of Financial Statement, Working Capital Finance, Credit Control and Monitoring, Rehabilitation and Recovery.

Read this module from McMillan book only. The chapters in this module are not lengthy as compared to other modules. Practice Numerical from Financial statement and balance sheet.

Overall, you have to study at least three modules in detail so as to achieve the 50 score. You can choose the modules to study more depending upon your strength. I would suggest that you can keep module B at last, just read formulas from this module, as this module is quite boring, lengthy and hard to understand

https://iibfadda.blogspot.com/2020/08/caiib-abm-strategy.html?m=1

BFM::;;

The strategy for the study of Bank Financial Management which many people finds difficult to clear. If you study properly, it is easy to clear the BFM. This subject also contains 4 modules, they are;

-International Banking

-Risk Management

-Treasury Management

-Balance Sheet Management

Many people do not correlate the syllabus of the subject with day to day banking activity. So they find it difficult to score and understand this subject. But this not true, this subject is very much important which will increase your knowledge regarding top management & middle management functioning of your bank as well as banking as a whole industry.

All the modules are equally important, but you may clear the paper with three modules study also. Module A & B are relatively easy and scoring as well. Let us discuss strategy for each module.

Module A-International Banking

Important topics are Exchange Rates and Forex Business, Basics for Forex Derivatives, Documentary LC, and Facilities for Exporters & Importers

Rapid reading or bullet point reading is quite useful for this module. Practice numerical again and again.

Many numerical/case studies are asked from this module which are quite easy as compared to Module B & Module D case studies. Refer the case studies from McMillan given at the end of the topic. Also N.S.Toor book has many numerical and case studies. Questions are asked on Exchange rates, Shipment Finance etc.

Module B-Risk Management

All chapters are equally important as they are interlinked to each other. Again focus more on case studies/numericals given in Apendix at the end of chapter. Maximum case studies are asked from this module. Though short notes are useful for this module I would suggest McMillan reading for this module because some questions are twisted type for which you require details of the concept which is hard to get from short notes. RBI website contains FAQs which are quite useful for this modules, you should read them at least once.

Module C- Treasury Management

Important topics are Introduction, Types of treasury products, Treasury Risk Management, Treasury and Asset-Liability Management.

Mostly questions asked on this module are theoretical type, so through reading of McMillan is important. If you don’t get time then you can skip this module or read short notes since the weighted of this module for exam point of view is low according to me as compared to Module A&B. But those who wish to make carrier or work in treasury department, this is the best module to learn.

Module-D Balance Sheet Management

Important chapters are Components of ALM in Bank’s Balance Sheet, Capital and banking Regulation,, Capital Adequacy, Asset Classification and Provisioning Norms, Interest rate Risk management.

Though McMillan book contain sufficient material but I would suggest you to refer RBI website for this module. In this module focus more on Case Studies as compared to theoretical questions. Do not skip this module as it is much important for exam as well as knowledge point of view. No need to read McMillan line by line.

Overall you have to keep balance between theoretical reading as well as case studies/numerical since the paper would contain 40-45% case studies. N.S.Toor book contains good case studies and MCQs. Also there are many resources available on the internet from where you will get case studies for this module. After giving this paper you will realized that BFM is easier as compared to ABM and no need to worry for BFM.

STUDY STRATEGY & STUDY METHOD FOR JAIIB-CAIIB.

Dear All JAIIB-CAIIB Aspirants. Last time I've Discussed [Updated] about:

1. JAIIB-CAIIB STUDY STUDY STRATEGY & PLAN

2. 10 HABITS TO CLEAR CAIIB

3. A SHORT STORY BEHIND MY JAIIB-CAIIB SUCCESS

4. 5 HABITS TO CRACK JAIIB-CAIIB.

2Day Let Us discuss about Strategy for the JAIIB-CAIIB (Each Subject Wise & Every Topic Wise).

01. JAIIB (JUNIOR ASSOCIATE INDIAN INSTITUTE BANKERS)..

▪STUDY STRATEGY FOR JAIIB-PPB.

PPB (Principles & Practices of Banking) Subject is Very Easy & Daily Banking knowledge sufficient to crack the PPB Subject, If You need more knowledge Study properly McMillan Book..

This Subject Contains 4 Modules:

MOD-A: Indian Financial System

MOD-B: Functions of Banks

MOD-C: Banking Technology

MOD-D: Support Services-Market of Banking Services/Products.

- As WE are Bank Employees WE get very less time for study, so how to decide which topics to be Read & which topics to be Skipped?

IMPORTANT TOPICS FROM EACH MODULE:

1. MOD-A: INDIAN FINANCIAL SYSTEM.

• Banking Regulations

• Capital Markets/Regulators

• Risk Management & BASEL II-III

• Factoring & Forteiting.

This Module is has 11 Topics & this's theoritical Module.

You must read BASEL-2 an overview because this most Important in Our Banking life & as well as in Upcoming Exams. 2nd Paper of JAIIB (AFB) & In the Course of CAIIB 1 Subject there's full Module on this topic.

2. MOD-B: FUNCTIONS OF BANKS.

• Banker-Customer Relationship

• Ombudsman Functions

• Lending (Working Capital)

• MSME & SHG

• NPA Provising.

This Module has 17 Topics & Most Important, Most Useful topics in Our daily Banking routines/duties.

Some Examples are: Banker-Customer Relationship, Accounts Opening to Various types of Customers, SHGs, Credit Cards, Govt Sponsored Schemes, FI, NPA, Collaterals Types, Payment & Cheque Collections, NI Acts, etc.

So, It's the most important Module to get Good Marks in this Subject & also get Good Knowledge in Banking Industry to take care of yourself about what is Good to do & what not?.

3. MOD-C: BANKING TECHNOLOGY.

• Data Communication & Network

• Security Consideration

• Cyber Crimes.

This Module has 6 Topics & Most Easiest Module among 4 Modules.

This Module would be Cakewalk for B.Tech (Computer Science/IT), B.Sc (Computer) & BCA/MCA Students. But it doesn't mean that tough for Non-Computer Students. they'll also get Easy Marks in this Module. try to get full Marks from this Module as it has 5 topics, those are also easily Understandable topics.

4. MOD-D: SUPPORT SERVICES-BANKING SERVICES/PRODUCTS.

• Social Media Marketing

• Pricing & Distribution

• MIS & DIS/DMA

• CHIPS & CHAPS

• Agri Management.

This Module has 8 Topics & As the name suggests it's fully about Marketing. It doesn't mean that You should be Good at Marketing & Some basic concepts of Marketing will come to you in this Module.

This Module is Cakewalk for MBA (Marketing) Students. You can simply complete this MOD-C.

5. MOD-E: ETHICS IN BANKS & FINANCIAL INSTITUTIONS.

• Business Ethics & Banking

• Individual Ethics Level

• Ethical Dimension

• Ethic Work & Workplace

• Banking Ethics.

This Module has 5 Topics & As the name suggests it's fully about Banking Ethics Management. It doesn't mean that You should be Good at Ethics of Bank Employees & Some basic concepts of Banking Ethics, Work Ethics & Work Place will come to you in this Module.

This Module is Cakewalk for B.Com & M.Com Students. You can simply complete this MOD-B & D.

- Overall, You've to Study at least 3Modules in detail so as to Achieve the 60-70 Marks. You can choose the Modules to Study more depending upon Your Strength..

▪STUDY STRATEGY FOR JAIIB-AFB.

Strategy for the study of AFB (Accounting & Finance for Bankers) Subject, which Many People finds Very Difficult to clear. If You Study Properly, It's Very Easy to Clear AFB.

This Subject Contains 4 Modules:

MOD-A: Business Maths & Finance

MOD-B: Principles of Bookkeeping & Accountancy

MOD-C: Final Accounts

MOD-D: Banking Operations.

This Subject mainly Cakewalk for B-Com & M-Com Students.

Many People don't correlate the syllabus of the subject with Day to Day Banking Activity. So they find it difficult to Score & Understand this subject. But this not true, this Subject is Very Important which will Increase Your Knowledge regarding JUNIOR & MIDDLE MANAGEMENT functioning of Your Bank, As Well As a whole Banking Industry; So How to decide which topics to be Read & which topics to be Skip?.

IMPORTANT TOPICS FROM EACH MODULE:

1. MOD-A: BUSINESS MATHS & FINANCE.

• Interest Rate Calculation

• YTM Calculation

• Capital Budgeting

• Depreciation & Accounting.

This Module has 6 Topics & Easiest Module among 3 Modules as it's calculative part as the Name Suggests.

I'll Say how much Important it's, there's ABM Subject (CAIIB 1st Paper). That Subjects basic points are given here as basics in this MOD-A (Economic Analysis), In this Module You must read BASEL-2 & 3 an overview. Because this's most Important in Our Banking Life & As Well As in upcoming exam CAIIB (1Subject there's Full Module on this topic).

Some simple topics are: Interest Calculation (EMI & NPV), Basel-2 & 3 Accord Overview, YTM Calculation, Depreciation (Methods of Straightline, Decling Balance & Double Decling Balance), FOREX (So Many People thinks it's difficult. But If You study Its Basics you'll also get Good Marks in CAIIB-ABM Subject).

2. MOD-B: PRINCIPLES OF BOOKKEEPING & ACCOUNTANCY.

• Bank Reconciliation Statement

• Trial Balance & Closing Entries

• Capital & Expendutre

• Foreign Exchange.

This Module has 5 Topics & Most Important, Most Useful topics in Our Daily Banking Routines/Duties.

It Contains:

• What's Book-Keeping & Accountancy?

• What's Book-Keeping & Its Standards?

Ans: It has 3 Topics, they are:

1.There's Basics of Book-keeping & Its Standards. There are 29 Accounting Standards, You must be Familiar with this to complete this MOD-B.

2.There are Accounting Concepts at Recording & Reporting Stage in Each One (You must read 6 Points).

3.There are topics like Journal, Ledger, Petty Cash, Head Cashier Ledger, Etc..

So, It's the most Important Module & to get Good Marks & Good Knowledge in Banking Industry.

3. MOD-C: FINAL ACCOUNTS.

• Balance Sheet Equation

• Ratio Analysis

• Rectification Errors

• Final & Company Accounts.

This Module has 12 Topics & As the title of Module suggests Special Account, it's the Most Priority Module You can give after MOD-A (Business Maths & Finance).

In this Module all topics Very Interesting & Makes You Curious to learn topics easy to study. Some topics are: BRS, Exchange Bills, Depreciation Accounting (This would be Continuation to Depreciation topic in MOD-A), Consignment Account, Leasing Hire Purchase, Joint Venture, Non-Trading Organisation Accounts, Etc.

4. MOD-D: BANKING OPERATIONS.

• Banking Operations

• Cash/Clearing & Deposits

• Loan Accounts.

This Module has 6 Topics & Some simple easy topics.

Those are: Balance Sheet Equation, Partnership Accounts (VV Imp), Company Accounts & Final Accounts, Etc..

- Overall, You've to Study All 4Modules in detail so as to Achieve the 55-60 Marks. You can choose the Modules to Study more depending upon Your Strength..

▪STUDY STRATEGY FOR JAIIB-LRAB.

LRAB (Legal & Regulatory Aspects of Banking) Subject is which Many People finds Very Difficult to clear. If You Study Properly, It's Very Easy to Clear LRAB.

This Subject Contains 4 Modules:

MOD-A: Regulations & Compliance

MOD-B: Legal Aspects of Banking Operations

MOD-C: Banking Related Laws

MOD-D: Commercial Laws with Reference to Banking Operations.

This Subject mainly Cakewalk for LLB Graduates (Students) & Very tough even than AFB Subject, as it's full theoretical Subject.

-As We're Bankers WE get very less time for Study. So, How to decide Which Topics to be Read & Which Topics Skipped?.

IMPORTANT TOPICS FROM EACH MODULE:

1. MOD-A: REGULATIONS & COMPLIANCE.

• Legal Framework

• Returns, Inspection & Mergers

• PSB & Co-Operative Banks.

This MOD is have 5 Topics & You'll learn, Constitution of Banks, What're Banks, Types of Banks, Regulator of Banks, Banking Ombudsman, Payment Systems, Etc.

Give 1st Preference to this MOD (If You want to start with Theory).

2. MOD-B: LEGAL ASPECTS OF BANKING OPERATIONS.

• Borrower & Credit Facility Types

• Bank Guarantees

• Bill Finance Laws

• Reg & Satisfaction Charges.

This MOD has 14 Topics & Will discuss about Responsibilities of Bank while doing its duties & Some more important topics those will come in CAIIB.

Some Important & Easy Topics in this MOD are: Responsibities of Paying/Collecting Banks, Indemnities, Bank Guarantees, LOC (VV Important Topic in whole JAIIB-CAIIB), Types of Credit Facilities, Secured & Unsecured Loans, Etc.

3. MOD-C: BANKING RELATED LAWS.

• SARFASI Act

• BBE Act

• Lok Adalats

• Income Tax Act.

This MOD has 21 Topics & Heart of the Subject. Because all the Laws are in this MOD.

Don't think that reading Years of Acts is sufficient. In this MOD All Topics are Very Important & Easy to Study.

Some Topics are: SARFASI Act-2002 (Introduction & Definition), Banking Ombudsman Scheme-2006, DRT Act, BBE Act-1891, LSA Act, CP Act, Tax Laws, Etc.

4. MOD-D: COMMERCIAL LAWS WITH REFERENCE TO BANKING OPERATIONS.

• Contract Act

• N.I. 1881 Act

• BR Act

• Partnership Act

• RBI Act

• Limitation Act

• Company Act.

This MOD has 28 Topics & If You see, the 1st time You'll get Emotional Tears as it's the most heaviest of All MODs (But know a proverb 'All that Glitters isn't Gold' its easiest among all MODs). Because these Chapters are Simple & Easy to learn Topics, You can pay this MOD as 1-Liner Stories.

These MOD has all the related Laws that in Topics of 2nd Subject of AFB.

Some Topics are: Contracts of Indemnity, Guarantee, Bailment, Pledge & Agency, Partnership Basics, Types of Companies, Etc.

- Overall, You've to Study ALL 4Modules in detail so as to Achieve the 70-80 Marks. You can choose the Modules to Study more depend upon Your Strength..

02.CAIIB (CERTIFIED ASSOCIATE INDIAN INSTITUTE BANKERS)..

▪STUDY STRATEGY FOR CAIIB-ABM.

ABM is 1 of the Compulsory Subject for CAIIB; Most of the People find very difficult to clear this Paper, If you study properly it's easy to clear the ABM Subject.

This Subject Contains 4 Modules:

MOD-A: Economic Analysis

MOD-B: Business Mathematics

MOD-C: HRM IN BANKS

MOD-D: Credit Management.

- As WE are Bank Employees WE get very less time for study, so how to decide which topics to be Read & which topics to be Skipped?

The Subject Generally Paper consists of 60% Theoritical & 40% Numerical/Case Studies. So choose the Module to be Study in deep so as to Clear the Paper easily depending upon your Personal Strength & Weakness.

If You observed the All Modules, You'll realize that MOD-A & C are most Scoring Modules. MOD-B contains Business Maths which many People find difficult to Study as the Level of Maths is tough (Especially for ARTS, SCIENCE & ENGINEER background People). Those who works in Credit/Loan Section will find that MOD-D is most Important not only Exam Point of View. But also for your daily working in Credit Section, so don't skip MOD-D.

IMPORTANT TOPICS FROM EACH MODULE:

1. MOD-A: ECONOMIC ANALYSIS.

• Supply & Demand

• Money Supply & Inflation

• Business Cycles

• GDP Concepts & Union Budget.

No need to read McMillan Book line by line for this Module, Short Notes will be quite useful for Studying this Module. Don't read Stats Given in these Chapters; In GDP Concepts & Union Budget, Chapters Numerical are asked which are quite easy provided You know the Components & Formula.

2. MOD-B: BUSINESS MATHS.

• Time Value of Money (TVM)

• Sampling Methods

• Simulation

• Bond Investment.

Don't go to deep for Study this Module as Mathematical Calculations are difficult to understand (Especially for ARTS & SCIENCE background People). Practice the examples Given in McMillan; those who are not Good at Maths can skip this Module & focus more on Remaining Modules.

You can keep MOD-B at last, Just read Formulas from this Module, as this Module is quite boring, length & hard to understand.

3. MOD-C: HRM IN BANKS.

• Human Resource Development

• Human Implication Organisation

• Performance Management

• HR & IT.

You need to read thoroughly All the topics from this Module from McMillan. It's quite easy & theoretical only. Repeatedly read MCQs from N.S.TOOR Book of this Module.

4. MOD-D: CREDIT MANAGEMENT.

• Credit Management Overview

• Financial Statement Analysis

• Capital Finance Work

• Credit Control & Monitoring

• Rehabilitation & Recovery.

Read this Module from McMillan book only; the Chapters in this Module are not lengthy as compared to Other Modules. Practice Numerical/Study Case from Financial Statement & Balance Sheet.

- Overall, You've to Study at least 3Modules in detail so as to Achieve the 50 Marks. You can choose the Modules to Study more depending upon Your Strength..

▪STUDY STRATEGY FOR CAIIB-BFM.

Strategy for the study of BFM (Bank Financial Management) Subject, which Many People finds very difficult to clear. If you study properly it's easy to the BFM.

This Subject also contains 4 Modules:

MOD-A: International Banking

MOD-B: Risk Management

MOD-C: Treasury Management

MOD-D: Balance Sheet Management.

Many People don't correlate the syllabus of the subject with Day to Day Banking Activity. So they find it difficult to Score & Understand this subject. But this not true, this subject is very much important which will increase your knowledge regarding TOP & MIDDLE MANAGEMENT functioning of your Bank, as well as a whole Banking Industry.

All the Modules are Equally Important, but you may clear the paper with 3 Modules study also.MOD (A & glasses emoticon are relatively easy & scoring as well.

Let Us discuss the Strategy for CAIIB-BFM. Each Module wise:

1. MOD-A: INTERNATIONAL BANKING.

• Exchange Rates & Forex Business

• Basics for Forex Derivatives

• Documentary LC

• Facilities for Exporters & Importers.

Rapid Reading/Bullet Point Reading is quite useful for this module. Practice Numerical again & again.

Many Numerical/Case Studies are asked from this module which are quite easy as compared to Mod-B & Mod-D case studies. Refer the case studies from McMillan given at the end of the topic. also N.S.TOOR books has many Numerical & Case Studies. Questions are asked on Exchange Rates & Shipment Finance, Etc.

2. MOD-B: RISK MANAGEMENT: All Chapters are equally important as they are interlinked to each other. Again focus more on Case Studies/Numericals given in Apendix at the the end of charter.

Maximum Case Studies are asked from this module. Though short notes are useful for this Module, McMillan book reading for this Module, because some Questions are twisted type for which you require details of the concept which is hard to get from short notes.

RBI Website contains FAQs which are quite useful for this Modules, you should read them at least once.

3. MOD-C: TREASURY MANAGEMENT.

• Introduction

• Types of Treasury Products

• Treasury Risk Management

• Treasury & Asset-Liability Management.

Most Questions asked on this Module are theoritical type. so through reading of McMillan book is important. If you don't get time then you can skip this Module or Read Short Notes, since the weighted of this Module for exam point of view is low according to as compared to Mod-A & Mod-B. But those who wish to make Carrier/Work in Treasury Department, this is the best Module to learn.

4. MOD-D: BALANCE SHEET MANAGEMENT.

• ALM in Banks Balance Sheet

• Capital & Banking Regulation

• Capital Adequacy

• Asset Classification & Provisioning Norms

• Interest Rate Risk Management.

Though McMillan Book contain sufficient material but refer RBI Website for this module. In this Module focus more on Case Studies as compared to theoretical questions. Don't skip this Module as it's much important for exam as well as knowledge point of they. No need to read McMillan line by line.

- Overall, You have to to keep balance between Theoritical reading as well as Case Studies/Numerical since the paper would contain 40-45% Case Studies. N.S.TOOR book contains good Case Studies & MCQs. also there are many resources available on the Internet from where you will get case studies for this Module.

After giving this paper you will Realized that BFM is very easier as compared to ABM & Retail Banking. No need to worry for BFM, Be Happy.

▪STUDY STRATEGY FOR CAIIB-RB (RETAIL BANKING)..

DEAR ALL CAIIB ASPIRANTS.

Focus on following the Important Chapters for Retail Banking.

1. RB Latest Trends

2. ATM Updates

3. Mobile & Internet Banking Updates

4. EMI Calculation

5. TVM Annuity

6. FV/PV Annuity

7. Capital Gain

8. Taxation

9. Credit Card

10. Home Loan Valuation.

- Expectation 40-60% Marks, if u follows these Topics..

▪STUDY STRATEGY FOR CAIIB-INTERNATIONAL BANKING..

DEAR ALL CAIIB ASPIRANTS..

ALL 5 Modules are Very Very Important. MOD-A (Foundation of International Financial Management), MOD-B (Foreign Exchange Market, Rate Determination & Currency Derivatives), MOD-C (Foreign Exchange Exposure & Management), MOD-D (World Financial Markets & Institutions) & MOD-E (Financial Management of Multinational Firm) in CAIIB-International Banking Subject..

• Give the Most Importance & Practice more following Chapters in International Banking.

1. IB Monetary System

2. World Corporate Governance & Payments Balance

3. Globalization & Multinational Firm

4. FE Market & IB Equity Market

5. FE Futures & Options

6. Transaction & Economic Exposure Management

7. IB Money Market & Bond Market

8. IB Trade Finance & Capital Budgeting

9. Multinational Cash Management

10. IB Transfer Price & Tax Environment

11. IB Interest Rate & Currency Swaps

12. IB Capital Cost & Capital Structure.

- These Topics are Play Vital Role to Clearing CAIIB-International Banking Subject. Expected Score 50-70 Marks..

ALL THE VERY BEST..

WISH YOU GOOD LUCK & DO WELL

https://iibfadda.blogspot.com/2020/08/caiib-bfm-strategy.html

Monday, 21 December 2020

Caiib ABM yesterday's recollected questions 20.12.2020

20.12.2020 ABM Re-collected questions

-------------------------------------------

Compound interest 2 questions

CRR case studies

5 mark Passage question on HRM management issue

Z value calculation

Attitude

Attributes

Common size statement

Balance of trade and payment

Willful defaulters

Creation of charge on securities

Demographic divident

Vrooms expectancy model

Date of execution of documents

Class

Factoring- invoice values

Johari window

Simulation definition

Current ratio

Quick ratio

Gross profit ratio

Net profit ratio

Return on capital employed

Return on equity ratio

Inventory turnover ratio

Is-lm curve

Performance appraisal

Hicks-hansen theory

Market economy'-laissez faire

Hickshansen theory explanation

Problem on CRR SLR given in first batch

Problem on Gdp deflector

3 marks for appraisal

Was 4 5 case studies

Around 8 to 10 numericals

From module b

No case studie on working capital though

Pv fv

Balance sheet

M1 m2 concept

5 question on working capital

5 question on probability

Questions came from theory most of all

From business math very easy FV PV and correlation

One case study from mpbf

Theory and case study from hrm

5 marks from revenue capital deficit

Demographic dividend

Attitude

Attributes

Common size statement

Balance of trade and payment

Willfully defaulters

Creation of charge on securities

Demographic divident

Vrooms expectancy model

Date of execution of documents

Class

Factoring- invoice values

Johari

Simulation definition

Currentratio

Quick ratio

Gross profit ratio

Net profit ratio

Return on capital employed

Return on equity

Inventory turnover

Questions came from theory most of all

From business math very easy FV PV and correlation

One case study from mpbf

Theory and case study from hrm

5marks from revenue capital deficit

Problem on CRR SLR given in first batch

Problem on Gdp deflector

3 marks for appraisal

Was 4 5 case studies

Around 8 to 10 numericals

From module b

No case studie on working capital though

Pv fv

Balance sheet

Is-lm curve

Performance appraisal

Hicks-hansen theory

Market economy'-laissez faire

M1 m2 concept

All the best

Sunday, 13 December 2020

Caiib BFM strategy

BFM::;;

The strategy for the study of Bank Financial Management which many people finds difficult to clear. If you study properly, it is easy to clear the BFM. This subject also contains 4 modules, they are;

-International Banking

-Risk Management

-Treasury Management

-Balance Sheet Management

Many people do not correlate the syllabus of the subject with day to day banking activity. So they find it difficult to score and understand this subject. But this not true, this subject is very much important which will increase your knowledge regarding top management & middle management functioning of your bank as well as banking as a whole industry.

All the modules are equally important, but you may clear the paper with three modules study also. Module A & B are relatively easy and scoring as well. Let us discuss strategy for each module.

Module A-International Banking

Important topics are Exchange Rates and Forex Business, Basics for Forex Derivatives, Documentary LC, and Facilities for Exporters & Importers

Rapid reading or bullet point reading is quite useful for this module. Practice numerical again and again.

Many numerical/case studies are asked from this module which are quite easy as compared to Module B & Module D case studies. Refer the case studies from McMillan given at the end of the topic. Also N.S.Toor book has many numerical and case studies. Questions are asked on Exchange rates, Shipment Finance etc.

Module B-Risk Management

All chapters are equally important as they are interlinked to each other. Again focus more on case studies/numericals given in Apendix at the end of chapter. Maximum case studies are asked from this module. Though short notes are useful for this module I would suggest McMillan reading for this module because some questions are twisted type for which you require details of the concept which is hard to get from short notes. RBI website contains FAQs which are quite useful for this modules, you should read them at least once.

Module C- Treasury Management

Important topics are Introduction, Types of treasury products, Treasury Risk Management, Treasury and Asset-Liability Management.

Mostly questions asked on this module are theoretical type, so through reading of McMillan is important. If you don’t get time then you can skip this module or read short notes since the weighted of this module for exam point of view is low according to me as compared to Module A&B. But those who wish to make carrier or work in treasury department, this is the best module to learn.

Module-D Balance Sheet Management

Important chapters are Components of ALM in Bank’s Balance Sheet, Capital and banking Regulation,, Capital Adequacy, Asset Classification and Provisioning Norms, Interest rate Risk management.

Though McMillan book contain sufficient material but I would suggest you to refer RBI website for this module. In this module focus more on Case Studies as compared to theoretical questions. Do not skip this module as it is much important for exam as well as knowledge point of view. No need to read McMillan line by line.

Overall you have to keep balance between theoretical reading as well as case studies/numerical since the paper would contain 40-45% case studies. N.S.Toor book contains good case studies and MCQs. Also there are many resources available on the internet from where you will get case studies for this module. After giving this paper you will realized that BFM is easier as compared to ABM and no need to worry for BFM.

Ten Mistakes to avoid while preparing for CAIIB exam

1.Not allocating sufficient amount of Study time daily:

2.Not having clear focus on optional paper:

Remember CAIIB is not only for increments; it also provides many useful theoretical knowledge in different areas of banking.

3.Not learning the basic concepts:

4.Not understanding and giving importance to syllabus:

5.Not having a preparation strategy and study plan

6.Not taking effective notes while studying itself

7.Not solving and practising mathematical problems:

8.Not revising the topics regularly:

9.Not learning from the mistakes:

10.Not using the technology for proper and effective preparation of exam:

CASE STUDIES ON DOCUMENTARY CREDITS AND UCP600

CASE STUDY 1
Banks have a practice of calling for the original LC at the time of presentation of documents and
endorse any drawings on its reverse.
LC's may be made available by Acceptance / Defferred Payment / Negotiation and to be freely
available with any bank.
Is it mandatory to endorse the original LC on its reverse?
Analysis
Most LCs contain a clause indicating such a requirement.
The practice is required by SWIFT standards cat.7, for freely negotiable credits, available with any
bank.
Conclusion
What is the problem?
CASE STUDY 2
If a nominated bank does not incur a deffered payment undertaking on presentation of complying
documents and forwards them to the Issuing Bank.
Subsequently can it a purchases a deferred payment undertaking from the issuing bank and seek
protection under UCP600?
Articles 7c. UCP600
CASE STUDY 3
If a LC is confirmed and is available with the Confirming Bank and the beneficiary chooses to
present the document directly to the Issuing Bank and the Issuing Bank wrongfully dishonors.
Should the confirming bank honor the presentation given that the LC has meanwhile expired?
Article 8a. UCP600
CASE STUDY 4
A documentary credit requires all documents must to be issued in English language.
The presentation includes a Certificate of Origin bearing a Stamp / Legalisation done in another
language
Is this a discrepancy?
Issued in?
CASE STUDY 5
As per Article 38 of UCP 600, A LC can be transferred to more than one second beneficiary. This
can be done preferably when the Partial Shipments are allowed under the LC.
If the first Beneficiary is certain that he would be able to comply with article 31(b) of UCP600 (re
partial shipments – submission of multiple BLs on the same voyage), can a LC be transferred to
more than one second beneficiary even if the LC states Partial Shipment is prohibited provided
Article 38.d. UCP600
CASE STUDY 6
If the nominated bank does not accept a bill of exchange drawn on them by the beneficiary, can the
same bill of exchange be presented to the issuing bank or should they present a fresh bill of
exchange drawn on the Issuing Bank
UCP Article 7a (iv)
CASE STUDY 7

INTERNATIONAL COMMERCIAL TERMS (INCOTERMS)

INTERNATIONALCOMMERCIAL TERMS (INCOTERMS)

The Incoterms 2010 rules

The Incoterms 2010 rules are standard sets of trading terms and conditions designed to assist traders when goods are sold and transported. INCOTERMS are generally used in both International trade and Domestic Trade . INCO terms are a series of international sales terms, published by International Chamber Of Commerce

(ICC) and widely used in international commercial transactions. These are accepted by governments, legal

authorities and practitioners worldwide for the interpretation of most commonly used terms in international

trade. This reduces or removes altogether, uncertainties arising from different interpretation of such terms

in different countries. They closely correspond to the U.N. Convention on contracts for the international

sale of goods. The first version of INCO terms was introduced in 1936. INCO terms 2010 (8th edition) were

published on Sept 27, 2010 and these came into effect wef Jan 1, 2011.

Main changes in INCOTERMS 2010

1. Removal of 4 terms (DAF, DES, DEQ and

DDU) and introduction of 2 new terms (DAP - Delivered at Place and DAT - Delivered at

Terminal). As a result, there are a total of 11

terms instead of 13 (2 additions, DAP and DAT and 4 deletions, DAF, DDU, DEQ and DES).

2. Creation of 2 classes of INCOTERMS - (1)

rules for any mode or modes of transport and (2) rules for sea and inland waterway [INCOTERMS 2000

had 4 categories namely E (covering departure), F (covering main carriage unpaid), C (covering main carriage paid) and D (covering arrival)

Each Incoterms rule specifies:

*the obligations of each party (e.g. who is responsible for services such as transport; import and export clearance etc)

*the point in the journey where risk transfers from the seller to the buyer

So by agreeing on an Incoterms rule and incorporating it into the sales contract, the buyer and seller can achieve a precise understanding of what each party is obliged to do, and where responsibility lies in event of loss, damage or other mishap.

The Incoterms rules are created and published by the International Chamber of Commerce (ICC) and are revised from time to time. The most recent revision is Incoterms 2010 which came into force on 1st January 2011.

The definitive publication on the Incoterms 2010 rules is the ICC publication number 715, which is available from various national bookshops.

This is essential reading for those with responsibility for setting a corporate policy or negotiating contracts with trading partners or service providers.

The logic of the Incoterms 2010 rules

The eleven rules are divided into two main groups

Rules for any transport mode

• Ex Works EXW

• Free Carrier FCA

• Carriage Paid To CPT

• Carriage & Insurance Paid to CIP

• Delivered At Terminal DAT

• Delivered At Place DAP

• Delivered Duty Paid DDP

Rules for sea & inland waterway only

• Free Alongside Ship FAS

• Free On Board FOB

• Cost and Freight CFR

• Cost Insurance and Freight CIF

In general the “transport by sea or inland waterway only” rules should only be used for bulk cargos (e.g. oil, coal etc) and non-containerised goods, where the exporter can load the goods directly onto the vessel. Where the goods are containerised, the “any transport mode” rules are more appropriate.A critical difference between the rules in these two groups is the point at which risk transfers from seller to buyer. For example, the “Free on Board” (FOB) rule specifies that risk transfers when the goods have been loaded on board the vessel. However the “Free Carrier” (FCA) rule specifies that risk transfers when the goods have been taken in charge by the carrier.

Another useful way of classifying the rules is by considering:

Who is responsible for the main carriage – the buyer or the seller?

If the seller is responsible for the main carriage, where does the risk pass from the seller to the buyer – before the main carriage, or after it?

This gives us these four groups:

Buyer responsible for all carriage – EXW

Buyer arranges main carriage – FAS; FOB; FCA

Seller arranges main carriage, risk passes after main carriage – DAT; DAP; DDP

Seller arranges main carriage, but risk passes before main carriage – CFR; CIF; CPT; CIP

Eleven terms

Group-1 INCO terms

1. EXW means that a seller has the goods ready for collection at his premises (works, factory,

warehouse, plant) on the date agreed upon. The buyer pays transportation costs and bears the risks for

bringing the goods to their final destination. This term places the greatest responsibility on the buyer and

minimum obligations on the seller.

2.FCA — Free Carrier (named places) : The seller hands over the goods, cleared for export, into the

custody of the first carrier (named by the buyer) at the named place. This term is suitable for all modes of

transport, including carriage by air, rail, road, and containerized / multi-modal sea transport.

3. CPT — Carriage Paid To (named place of destination): (The general/containerized/multimodal

equivalent of CFR) The seller pays for carriage to the named point of destination, but risk passes when

the goods are handed over to the first carrier.

4. CIP — Carriage and Insurance Paid (To) (named

place of destination): The containerized transport/multimodal equivalent of CIF. Seller pays for carriage

and insurance to the named destination point, but risk passes when the goods are handed over to the first

carrier,

5. DAP : delivered at place

6. DAT I. delivered at terminal

7. DDP — Delivered Duty Paid (named destination place): This term means that the seller pays for all

transportation costs and bears all risk until the goods have been delivered and pays the duty. Also used

interchangeably with the term "Free Domicile". It is the most comprehensive term for the buyer. In most of

the importing countries, taxes such as (but not limited to) VAT and excises should not be considered

prepaid being handled as a "refundable" tax. Therefore VAT and excise usually are not representing a

direct cost for the importer since they will be recovered against the sales on the local (domestic) market.

Group-2 INCO terms

8. FAS — Free Alongside Ship (named loading port): The seller must place the goods alongside the ship

at the named port. The seller must clear the goods for export. Suitable for maritime transport only but NOT

for multimodal sea transport in containers. This term is typically used for heavy-lift or bulk cargo.

9. FOB — Free on board (named loading 'port): The seller must themselves load the goods on board the

ship nominated by the buyer, cost and risk being divided at ship's rail. The buyer must instruct the seller

the details of the vessel and port where the goods are to be loaded, and there is no reference to, or

provision for, the use of a carrier or forwarder.

10.CFR or CNF — Cost and Freight (named destination port): Seller must pay the costs and freight to

bring the goods to the port of destination. The risk is transferred to the buyer once the goods have

crossed the ship's rail. Maritime transport only and Insurance for the goods is NOT included. Insurance is

at the Cost of the Buyer.

11.CIF — Cost, Insurance and Freight (named destination port): Exactly the same as CFR except that theseller must in addition procure and pay for insurance for the buyer (Maritime transport only).

Ten common mistakes in using the Incoterms rules

Here are some of the most common mistakes made by importers and exporters:

• Use of a traditional “sea and inland waterway only” rule such as FOB or CIF for containerised goods, instead of the “all transport modes” rule e.g. FCA or CIP. This exposes the exporter to unnecessary risks. A dramatic recent example was the Japanese tsunami in March 2011, which wrecked the Sendai container terminal. Many hundreds of consignments awaiting despatch were damaged. Exporters who were using the wrong rule found themselves responsible for losses that could have been avoided!

• Making assumptions about passing of title to the goods, based on the Incoterms rule in use. The Incoterms rules are silent on when title passes from seller to buyer; this needs to be defined separately in the sales contract

• Failure to specify the port/place with sufficient precision, e.g. “FCA Chicago”, which could refer to many places within a wide area

• Attempting to use DDP without thinking through whether the seller can undertake all the necessary formalities in the buyer’s country, e.g. paying GST or VAT

• Attempting to use EXW without thinking through the implications of the buyer being required to complete export procedures – in many countries it will be necessary for the exporter to communicate with the authorities in a number of different ways

• Use of CIP or CIF without checking whether the level of insurance in force matches the requirements of the commercial contract – these Incoterms rules only require a minimal level of cover, which may be inadequate.

• Where there is more than one carrier, failure to think through the implications of the risk transferring on taking in charge by the first carrier – from the buyer’s perspective, this may turn out to be a small haulage company in another country, so redress may be difficult in the event of loss or damage

• Failure to establish how terminal handling charges (THC) are going to be treated at the point of arrival. Carriers’ practices vary a good deal here. Some carriers absorb THC’s and include them in their freight charges; however others do not.

• Where payment is with a letter of credit or a documentary collection, failure to align the Incoterms rule with the security requirements or the requirements of the banks.

• When DAT or DAP is used with a “post-clearance” delivery point, failure to think through the liaison required between the carrier and the customs authorities – can lead to delays and extra costs

Very Important case studies for CAIIB BFM

Case Study -1

Calculation of bills buying rate, when exchange margin and interest is also to be taken into account:
On July 5, an exporter in India, submits aUSD50000, 2months usance bill drawn under a letter of credit, on animporter inUS. The normal
transit period is 25 days. The inter-bank currency rates are as under:
Spot rate : 1 USD = Rs.65.0000 5000
July forwardmargin = 0.3500 / 0.4000
August forwardmargin = 0.6000 / 0.7000
September forwardmargin = 0.8500 / 0.9000
October forwardmargin = 0.9500 / 0.9900
The exchangemargin is 0.15%. Customer wants to retain 20% of the amount in a current account opened in USA. Rate of interest is
10% p.a. Calculate tl-e following:
1. Rate to be quoted to the customer ,
2. Gross amount to be credited to customer account.
3. Amount of interest to be'deducted.
Solution : The bill dated Jul 05, has 25 transit period + 2months'Usance (Aug and Sep).Hence the payment shall fall due on Sept 30. The
exporterwill be allowed the benefit of Sept forwardmargin sincethe payment is due on last day of Sept.
Further, interest will be recovered from the customer from the date of discount to date of realization on the amount to be credited to his
account (i.e. 80%of the bill amount, as the balance is to be retained in USA).
Spot rate = 65.0000
AddSeppremium=65.0000 +0.8500= 65.85
Deductmargin@0.15% = 65.8500—0.09878 = 65.75122
Final rate = 65.7500 (rounded)
Gross amount due to customer = 65.7500 x 40000* = 2630000
*(20%to be retained inUSA out of 50000)
Less interest@10%for 86 days = Rs.62308.53
(2630000x10x86) / (365x 100)
Net amount payable to exporter =Rs.2567691.46

Case Study -2
Calculationof TT selling ratewhenexchangemarginis given:On July 5, a savingbank customer in India, requests for issue aUSD10000. The
inter-bank currency rates areas under:
Spot rate : 1 USD = Rs.65.0000 / 5000
July forwardmargin = 0.3500 / 0.4000
Bank requires an exchangemarginof 0.15%.
What ratewillbe quoted and howmuch amountwillbedebited to customer's account.
Solution : In this case, no handling of documents is required.Hence TT selling rate shall be used. Exchangemarginwill be added, since for the
bank, it is a sale transaction.
Spot rate selling rate = 65.5000
Addmargin@0.15% = 65.5000 + 0.098775 = 65.598775
Final rate = 65.6000 (rounded)
Gross amountduefromcustomer= 65.6000 x10000=656000

Case Study 3
Calculation for dishonour of export bill purchased by the bank, when exchange margin is given
An export bill of USD 10000 was purchased from an exporter at the then bills buying rate of Rs.65.80. But on due date it was not
paid. Now the bank has to recover the amount from the exporter.
The inter-bank currency rates are as under:
Spot rate : 1 USD = Rs.65.0000 / 5000
July forward margin = 0.3500 / 0.4000
August forward margin = 0.6000 / 0.7000
Bank requires an exchange margin of 0.20% for TT selling rate and 0.15% for bills selling rate.
What rate will be quoted and how much amount will be debited to customer's account.
What gain has been made by the customer in the transaction.
Solution : In this case, handling of import documents is not required. For recovering the amount from export customer, the
TT selling rate shall be used. Exchange margin for TT selling will be added, since for the bank, it is a sale transaction.
Inter-bank spot selling rate = 65.5000
Add TT sellingmargin@0.20%= 65.5000 + 0.1310 = 65.6310
TT selling rate = 65.6310, Amount to be debited = 65.6310 x 10000 = Rs.656310
Profit to the exporter = 658000—656310 = Rs.1690 (amount creditedwhen purchased less amount recovered)

Case Study 4
Calculation of rate and amount for credit of proceeds of bill sent for collection.
An export bill ofUSD 10000was sent for collectionwhichwas submitted by an exporter.On July 10, the correspondent bank creditedUSD9860,
the proceeds of the bills, toNOSTROaccount of thecollecting bank, after recovering its own charges.
The inter-bank currency rates on July 10, are as under:
Spot rate : 1 USD = Rs.65.0000 / 5000
July forwardmargin = 0.3500 / 0.4000
August forwardmargin = 0.6000 / 0.7000
Bank requires an exchange margin of 0.10% for TT buying rate and 0.15% for bills buying rate.
What ratewillbe quoted and howmuch amountwillbecreditedtocustomer's account.
Solution : In this case, the billwas sent for collection.On theamount realized, the TT buying rateshallbe used since the amount has already
beencredited toNOSTROaccountof the bank. There isno need to take any forwardmarginin to account.
Exchange margin for U buying will be deducted, since for the bank, it is a purchase transaction.
Inter-bank spot selling rate
Less TT buyingmargin@0.10%TT
buying rate
Amount to be credited
====
65.0000
65.0000+0.0650
65.0650
65.0650x9860=
=65.0650
Rs.641541

CaseStudy5

Calculationofrateandamountforcreditofproceedsofbillpurchasedfromexporter
AnexportbillhasbeensubmittedbyanexporterforUSD40000forpurchaseonSept15.Theotherinformationisprovidedasunder:
1. Inter-bankexchangerateis66.5400/6000
2. Octoberforwardpoints=0.5000/0.4500
3. Transitperiodis15days
4. Rateof interestis10%
5. Exchangemarginis0.10%
6. FinenessofratesshouldbeasperFEDAIRulesi.e.0.0025
Whatratewillbequotedandhowmuchamountwillbecreditedtocustomer'saccount.
Solution:ExchangemarginforTTbuyingwillbededucted,sinceforthebank,itisapurchasetransaction.Furtherinterestat10%for15dayswillbe
recovered.Octoberforwarddiscountshallbereduced.
Inter-bankspotbuyingrate = Rs.66.5400
Lessmargin@0.15% = 66.5400-0.06654=66.47346
Ratetobequoted = 66.4725(0.0025fineness)
Dueamount = 66.4725x40000=Rs.2658900
LessInterest@10%for15days = Rs.10926.99
Amounttobecredited = Rs.2647973

Case Study 6
Purchaseof export bill byusing cross rate
An exporter tenders an export bill of Singapore Dollars 20000. At that time:
1. Inter-bankUSDratewasRs.65.5045/6070
2. Forwardrate:Onemonth,0.2000/1500,2months 0.4500/3500, 3month: 0.7000/6000
3. USD/SGDratewasUSD1=1.3205/3225.
4. Forwardrate:Onemonth,0.0200/0300,2months 0.0400/0500, 3month: 0.0600/0700
5. Exchangemarginis0.10%.
6. Transitperiodis25days.
7. Interestrateis10%
What rate will be quoted by the bank and how much amount in Indian currency, shall be credited to exporter's current account?
Solution : This involves calculation of cross rate since at the time of cancellation, the Singapore dollar / rupee rate is not available. Since it is a
purchase transaction andUSDforward is at a discount, onemonth forward discountwill be taken into account.
As regards,USD/SGD, theUSDis at a premium, onemonthforwardwillbe taken into account, as it isa sale transactionfor thebank.

Inter-bank USD rate =
Less onemonthforwarddiscount =
Rate after forward discount =
Less exchangemargin@0.1% =
Rate after exchange margin =
Rounded (to 0.0025) =
USD/SGD selling rate =
Add one month premium =
USD/SGD one month =
SGD/Rupee rate =
Rs.65.5045
Rs.00.2000
Rs.65.3045
Rs.00.0653
Rs.65.2392
Rs.65.2400
1.3225
0.0300
1.3525
65.2400/1.3525= 48.20
Amount to be creditedto customer account = 48.20 x 20000=Rs.964000 Less interest for 25days@10%= 6602.74
Net amount = Rs.957397.26

Case Study 1 : Profit or losson a swapdeal.

Abank inDelhimakes a swapdealofUSD50000 by selling spot and buying onemonthforward. The other informationis as under:
1. Inter-bankUSDratewasRs.65.5045/6070
2. Onemonthforward rate isquoted Rs.0.25above the spot rate.
3. Interest ratein Delhi is 10%and inNewYork 5%p.a.
4. Commission on the deal is 0.5 paise per Rs.100 on sale and 0.5 paise on purchase.
Calculate the gain or lossmade by thebank inthis deal. Solution: The bank has sold spot at themarket buying rate of Rs.65.5045.
Accordingly, the onemonthforward buyingwill be atRs.65.7545 (65.5045 + 0.2500).
1. Amount receivedonsale ofUSD50000:
USD50000x 65.5045 =Rs.3275225.00
Less commission@0.5 paise =Rs.163.76
Amount received =Rs.3275061.24
Interest earned at 10%for onemonth =Rs.27292.18
Net amount received =Rs.3302353.42
2. Principal amount + interest payable inUSD
Principal amount =USD50000
Interest@5%onUSD50000 for onemonth =USD208.33
Total amount =USD50208.33
Amount payable in Indian currency =Rs.3301423.63
(50208.33x65.7545)
Add commission@0.5 paise =Rs.165.07
Total amount payable =Rs.3301588.70

3.Gain(1-2) =Rs.764.72

Case Study 2 : Booking and cancellation of a Forward Contract

A bank in Delhi entered into a forward purchase contract for USD 10000
on Aug 16, with its customer, which is due on Nov 15, at Rs.65.8050.
Bank covered itself intheinter-bankmarket at Rs.65.9050.
On October 10, the customer requested the bank that the date be
extended toDecember 15.
The rates are as under:
Spot Rate Inter-bankUSDratewasRs.65.5050/6050
Spot Sep=Rs.65.6050/7050
SpotOct = Rs.65.7050/8050 •
SpotNov = Rs.65.8050/9050
SpotDec =Rs.65.9050/9950
2. Exchangemarginshallbe 0.20%onbuying and selling transactions.
Calculate the charges that would be recovered from the customer for
extension of the date.
Solution : The bankwill cancel the contract and then re-book the same.
1. Cancellation of the original contract
The cancellationwill be at forward sale rate for deliveryNovember at
inter-bank forward selling rate. = Rs.65.9050
Add exchangemargin@0.20% = Rs.00.1318
Total = Rs.66.0368
Roundedto 0.0025 = Rs.66.0375
Purchase of USDat original contracted rate = Rs.65.8050
It sells by cancellation of contract = Rs.66.0375
Loss perUSDin sale = Rs.0.2325
Loss on totalUSD10000 =Rs.2325
2. Re-booking of the contract
The re-bookingof forwardcontractwillbewithdelivery forDecember 15. The forward rateforNovember shallbe taken asDecember isnot a

completemonth.
Forward rate to be taken for contract = Rs.65.8050
Less exchange margin @0.20@ = Rs.00.1316
Total = Rs.65.9366
Rounded to 0.0025 = Rs.65.9375
Hence,bankshallbookanewcontractatRs.659375andwillrecoverRs.2325forcancellationofthepreviouscontract.

CASE STUDIES

Case 1: Credits v/s contracts
Article 4, states that a credit by its nature is separate from the sale or other contract on which it is based and banks are in no way
concerned with or bound by such contracts.
It also states that the issuing bank must discourage any attempt by the applicant to include the details of the contact, proforma
invoice, etc, as an integral part of the LC.
Further, Article 5 of UCPDC 600, states that banks deal in documents and not in goods and services.
Even then, the applicants at times attempt to get the documents refused due to reasons, such as (i) goods not as per proforma
invoice (ii) obtain stay /injunction against the opening bank to honour payment of the documents received under LC, due to the
reason that the beneficiary has not sent the goods as shown, as mentioned in the contract or as given to understand.
Thus there could be a breach in the contract between the buyer and the seller, but the documents under LC could be perfectly
in compliance of the terms of LC, thus making the issuing bank liable to pay / honour.
Courts, in many cases, have been putting stays /granting injunctions and stopping issuing banks to pay to the negotiating bank and
debiting applicants accounts.
While issuing banks' on their own, should not, in connivance or other wise, try to excuse itself from making payments/
honoring the documents, with such reasons, which link the discrepancies to the sale contracts or the quality of goods, the
National courts/ law, being above the UCPDC, they are bound to wait for the stay /injunction to be lifted before making
payment to the negotiating banks.
The recovery of the amounts of documents from the applicant is altogether a separate issue, as it is a matter of taking credit risk by
the opening bank on the applicant. Thus, recovery of amount from the applicant must also not be linked to the honoring of payment
to the negotiating bank.

Case 2. Case of Date of documents

Bank A issues LC dated 1.10.2009, in favour of a beneficiary in UK. The last date of shipment as per LC is 15.10.2009 and last date of
negotiation 31.10.2009.
The beneficiary presents documents to Bank B, for negotiation on 05.10.2009, with documents evidencing shipment of goods on
30.09.2009, which sends the documents to the opening bank, asking to reimburse as per LC terms.
The opening bank, on receipt of documents notices that, the shipment was made on 30.09.2009 and the invoice was dated
2.09.2009, while the inspection certificate, analysis certificate and packing list were dated 25.09.2009
The issuing bank on receipt of documents rejected the documents, notifying discrepancy that documents were dated prior to date of
credit.
Article 14 i, specifically provides that documents could be dated prior to the date of LC, but should not be dated after the date of
presentation.
While, the LC is silent about the date of documents, documents presented need to be dated as per LC terms, if so provided in the LC.
As such, assuming that the LC did not provide for dates of the documents, the rejection by the opening bank is not as per UCPDC.

Case 3. Partial Shipments
An LC, covering shipment of 1000 cartons consisting of 15000 pieces of shirts, (readymade garments), from Chennai port to Dubai
port, provides that partial shipment is not allowed.
The beneficiary hands over 500 cartons of Shirts, to the shipping company on 15.7.2009 and another 500 cartoons on 18.7.2009.
The Shipping Company issues BL for the first 500 cartons on 17.7.2009 and another BL covering 500 cartoons on 19.7.2009. Both the
consignments are to be shipped by a vessel that is due to leave Chennai port on 21.7.2009. Thus the total goods under the LC , i.e.
1000 cartons, are shipped on a single vessel, but with two BLs.
The LC issuing bank, on receipt of documents drawn under the LC rejects the documents, stating the shipment is not made under
one BL and as such constitutes partial shipment, which is not permitted under the LC. The issuing bank, informs the negotiating bank
that goods are held at their disposal and further instructions are awaited.
As per article 31 of UCP, a presentation of documents consisting of more than one set of transport documents, covering shipment of
goods on the same means of transport and has same journey, will not be considered as partial shipment, even if they indicate
different dates of shipment.
As such, in the given scenario, the rejection of documents by the LC opening bank is not correct as per the Article 31 of UCP, and the
bank must pay /honour the documents.

Case 4. Notice of Dishonor

The LC issuing bank on receipt of documents on 15.9.2009 (Tuesday) took two days to examine the same and referred the
documents to the applicants for their acceptance on 17.9.2009 (Thursday). The applicants came up with a discrepancy in
documents, on 22.9.2009 (Tuesday) evening, stating that the documents need to be rejected as the BL was not stamped with "On
board" stamp and initialed by the shipping company.
The issuing bank sent a Swift message of rejection to the negotiating bank on 23.9.2009.
On receipt of Swift message from the issuing bank, informing rejection of documents and discrepancy, as informed by the applicant,
the negotiating bank referred the matter back to the opening bank stating that the message of refusal and notification of
discrepancy was not received within the time period of 5 working days, and as such claimed to be reimbursed as per LC teims.
Article 16 d of UCP states that the notice of refusal and discrepancy must be given latest by the closing hours of the 5 th working day
from the date of presentation. In the instant case, the opening bank was correct in sending the swift message on 23.9.2009, which
was 5th working day, subsequent to the date of receipt of documents.
Since, 19th and 20th were Saturday and Sunday and 21.9.2009, being a holiday in India, on account of Ramadan ID, the opening bank
was right in sending the notice of refusal / discrepancy on 23.9.2009, which was in compliance with the meaning of the said article.

CASE 5. Insurance

An LC calls for insurance from ware house to warehouse, and insurance to cover 110% of the invoice value.
Bank A negotiates and forwards documents, covering invoice for USD 17920.00 under a Multi model transport document (Combined
Bill of Lading) dated 15.9.2009. to the opening bank, under the said LC. The insurance enclosed to the documents is for USD
20,000.00 and is dated 17.9.2009.
As per the Article 28 of UCP, the insurance must indicate the amount of insurance. It should be at least 110% , of the invoice value if
the LC is silent on this requirement and must not be dated prior to the date of transport document.
In the given scenario, the insurance is dated after the date of multimodal transport document, which should be covering the voyage
of goods from the godown of the seller, and is more than the given percentage for insurance coverage, i.e. more tan 110%.
Banks would normally accept some difference in insurance coverage which could be due to rounding off of the values/cover amount,
but still can be used as a discrepancy to refuse the documents. However, a document dated after the date of shipping document, is
clearly a discrepancy, and requires specific approval from the applicant.

CASE STUDY ON PRE- AND POST-SHIPMENT FINANCE
Case: A textile exporter, with estimated export sales of Rs. 300 lacs during the last year and projected sales of Rs.500 lacs for the
current year, approaches the bank for granting credit facilities. The bank sanctions following facilities in the
account:PCL/FBP/FUBD/FBN ....... . ..... Rs. 100.00 lacs Sub limits:
PCL (25 % margin on fob value) Rs. 50.00 lacs FBP (10 % margin on bill amount) Rs. 50.00 lacs FUBD (15 % margin on bill amount) Rs.
50.00 lacs FBN (nil margin) Rs. 100.00 lacs
He gets an order for USD 50,000.00 CF, for exports of textiles- dyed/hand printed, to UK, with shipment to be made by 15.9.2009.
On 2.6.2009 he approaches the bank for releasing PCL against this order of USD 50,000.00. The bank releases the PCL as per terms of
sanction.
On 31.8.2009, the exporter submits export documents for USD 48,000.00, against the order for USD 50,000.00. The documents are
drawn on 30 days usance (D/A) as per terms of the order. The bank discounts the documents at the days applicable rate, adjusts
the PCL outstanding and credits the balance to the exporter's account, after recovering interest up to notional due date. Interest
on PCL recovered separately. st the
The documents are realized on 29.10.2009, value date 27.10.2099, after deduction of foreign bank charges of USD 250.00. The bank
adjusts the outstanding post shipment advance allowed again bill on 31.8.2009.
Bank charges interest at – PCL- 8.50 % upto 180 days, and post shipment at 8.50 % upto 90 days and. 10.50 % thereafter. Overdue
interest is charged at 14.50%.
the USD/INR rates were as under:
—2.6.2009: Bill Buying 48.20, bill Selling 48.40.
— 31.08.2009: TT buying 47.92, Bill buying 47.85, TT selling 48.08, Bill selling 48.15., premium for 3() days was quoted as
04/06 paise.
Now give answers to the following:
1. What is the amount that the bank allows as PCL to the exporter against the given export order, considering insurance and
freight costs of 12%.
(i) Rs. 15,90,600 @ (ii) Rs. 2410000.00 (iii) Rs. 2120,800.00 (iv) Rs. 1815000
2. What exchange rate will the bank apply for purchase of the export bill for USD 48,000.00 tendered ' by the exporter:
(i) 47.89 (ii) 47.85 (iii) 47.91 (iv) 47.96
3. What is the amount of post shipment advance allowed by the bank under FUBD, for the bill submitted by the exporter:

(i) Rs.19,54,728 (ii) Rs 19,52,280 (iii) Rs.19,53,912 (iv) Rs.22,98,720
4. What will be the notional due date of the bill submitted by the exporter:
(i) 30.10.2009
(ii) 30.9.2009
(iii) 25.10.2009
(iv) 27.10.2009
5. Total interest on the export bill discounted, will be charged up to;
(i) notional due date 25.10.2009
(ii) value date of credit 27.10.2009
(iii) date of realisation 30.10.2009
(iv) date of credit to nostro account 29.10.2009
Ans. 1: USD 50,000.00@ 48.20 = Rs.. 2410000.00 – less 12% for insurance and freight cost i.e Rs. 289,200 = Rs.21,20,800.00 (fob
value of the order. Less margin 25% i.e. Rs.530,200.00 balance Rs 15,90,600.00
Ans. 2: 47.89– Bill buying rate on 31.8.2008 – 47.85 plus 4 paise premium for 30 days, this being a DA bill.
.4 USD 48,000.00 @ 47.96 =Rs. 23,02,080.00, less 15% margin on DA bill, i.e. Rs. 345312.00
Ans.
0850:19:i161,7su6b8m.0i0tted on 31.8.2009- drawn on 30 days DA plus normal transit period of 25 days -
31.8.2009 plus 30 days plus 25 days, i.e. total 55 days from 31.3.2009 i.e. 25.10.2009
ADS 5: Interest is charged up to the date the funds have been credited to the banks nostro account, the effective date of credit is the
value date of credit, i.e. 27.10.2009.

SOME MORE CASE STUDIES ON EXCHANGE RATES
Basic Concepts
Negotiationof,ExportBillsisapurchasetransactionandRetirementofImportBillsisasaletransactionforthe
AuthorisedDealer.
InpurchaselowerratewillbeappliedandinSalehigherratewillbeapplied.Samewillbethecaseforforward
premium
In sale transaction exchangemarginwill be added but in purchase transaction exchangemarginwill be
deducted.

Case 1

OnJan10,2012,theMumbaibranchofpopularbankenteredintofollowingforeigncurrencysaleandpurchase
transactions:
(1) WithMr.AforsaleofUSD2000tobedeliveredontheJan10.
(2) WithMr.BforpurchaseofUSD2000tobedeliveredonJan11.
(3) WithMr.CforpurchaseofUSD2000tobedeliveredonJan14(Jan12and13beingbankholidays)
(4) WithMr.DforsaleofUSD2000tobedeliveredonFeb11.
Theinter-bankforeigncurrencyratesonJan10,2012areasunder:CashrateorreadyrateUSD=Rs.45.50/60,TomrateRs.45.55/65,SpotrateRs.45.60/70
andonemonthforwardrateRs.45.80185.
Onthebasisofabove,answerthefollowingquestions.
01 WhatratewillbeusedforthetransactionwithAandwhatamountinRupeeswillbeinvolved:
a) Rs.45.50,Rs.91000
b) Rs.45.55, Rs.91100
c) Rs.45.60, Rs.91200
d) Rs.45.65,Rs.91300
02 WhatratewillbeusedforthetransactionwithBandwhatamountinRupeeswillbeinvolved:
a) Rs.45.50, Rs:91000 --
b) Rs.45.55, Rs.91100
c) Rs.45.60, Rs.91200
d) Rs.45.65,Rs.91300

03What ratewillbeusedfor thetransactionwithCandwhatamountinRupeeswillbeinvolved:
a) Rs.45.50, Rs.91000
b) Rs.45.55, Rs.91100
c) Rs.45.60, Rs.91200
d) Rs.45.65,Rs.91300
02What ratewillbeusedfor thetransactionwithAandwhatamountinRupeeswillbeinvolved:
a) Rs.45.50, Rs.91000
b) Rs.45.55, Rs.91100
c) Rs.45.60, R-6:91200
d) Rs.45.65,Rs.91300
Ans.1-c 2-b 3-c 4-d
Explanations:
1. Itisasaletransaction.Hence,samedayratei.e.cashrateofRs.45.60willbeused.Theamount=-45.60x2000=Rs.91200
2. It is a purchase transaction. Hence, next day rate (TOM Rate) of Rs.45.55 will be used. The amount = 45.55 x 2000 = Rs.91100
3. Itisapurchasetransaction.Hence,3ffidayrate(SpotRate)ofRs.45.60willbeused.Theholidaysperiodwillbeexcludedfromcounting.Theamount=
45.60x2000=Rs.91200
4. Itisaforwardsaletransaction.HenceforwardsalerateorRs.45.85willbeused.Theamount=45.85x2000=Rs.91700

Case 2
AnexportersubmittedanexportbillofUSD100000drawnon120daysusancebasisfromdateofshipment,whichtookplaceonAug03,2012.The
followingfurtherinformationisprovided:
(1) TheduedateisDec01,2012.
(2) Theexchangemarginis0.20%.
(3) Spotinter-bankUSDrateisRs.45.00/05.
(4) PremiumspotNov0.40/45
(5) Rateisquotedtonearest0.25paiseandrupeeamounttoberoundedoff
(6) Interestrateis8%forperiodupto180days.
(7) Commissiononbillpurchaseis0.50%
Answerthefollowingquestions.
01Whatistherateatwhichthebillwill-bepurchasedifitisademandbillafteradjustmentofbankmargin,withouttakingintoaccount,thepremium?
a) Rs.44.91 b) Rs.45.09 c) Rs.45.31 d) Rs.45.51
02 What is the rate at which the bill will-be purchased if it is a demand bill after adjustment of bank margin and the premium? -
a) Rs.44.91 b) Rs.45.09 c) Rs.45.31 d) Rs.45.51
03What is thegross amountbeforeapplicationof interest andcommission:
a) R5.4531000 b) Rs.4410174 c) Rs.4407908.50 d) Rs.4507909
04What istheamountofthebillwithoutbankcommission
a) Rs.4531000 b) Rs.4410174 c) Rs.4407908.50 d) Rs.4407909
05Whatamountwillbecreditedtoexporter'saccount:
a) Rs.4531000 b) Rs.4410174 c) Rs.4407922.50 d) Rs.4407909
Ans. 1-a 2-c 3-a 4-b 5-d Explanation :
1. Calculationofbuyingratewillbeasunder:
Spot rate Rs.45.00(buying ratewillbeappliedas it ispurchase)
Less 0.20% margin Rs.00.09 Rate Rs.44.91
2. Calculationofratewillbeasunder:
Spot rate Rs.45.00(buying ratewillbeappliedas it ispurchase)
Less 0.20% margin Rs.00.09 Rate Rs.44.91
Addpremium Rs.00.40(premiumwillbeaddedas thatbenefitwillbeof thecustomer) Rate Rs.45.31-
3. Calculationofratewillbeasunder:
Spot rate Rs.45.00(buying ratewillbeappliedas it ispurchase) Less 0.20% margin Rs.00.09
Rate Rs.44.91 AddpremiumRs.00.40(premiumwillbeaddedas thatbenefitwillbeof thecustomer)
Rate Rs.45.31 Amount inRs.45.31 x100000 =4531000
4. Calculationofratewillbeasunder:
Spot rate Rs.45.00 Less 0.20% margin Rs.00.09 Rate Rs.44.91
Add premium Rs.00.40 RateRs.45.31-- GrossAmountinRs.45.31x100000=4531000
Interest120days@8%Rs.120826 Amount 4531000—120826=4410174
5. Calculationofratewillbeasunder:
Spot rate Rs.45.00 Less 0.20% margin Rs.00.09
Rate Rs.44.91 Add premium Rs.00.40

Rate Rs.45.31 Amount inRs. 45.31x100000 = 4531000
Interest120days@8%Rs.120826 Commissionat0.05%Rs.2265.50—
Amounttobecredited4531000-120826-2265.50=4407908.50(roundedtoRs.4407909).

Case 3

Yourexport customerhasreceivedanadvanceofUS10000againstexporttoUK,whichtheimporterinUKhasgotcreditedtoNOSTROaccountofthe
bankinLondon.Thecurrent inter-bankmarketrateUSD=45.10/15.Bankretainsamarginof0.15%onpurchaseand0.16%onsale.Whatamountwill
becreditedtocustomersaccount:
a. Rs.451676.50 b. Rs.450323.50 c. Rs.451721.60 d.Rs.450278.40 Ans.1-b
Explanations:
1: It is a purchase transaction for the bank.Hence inter-bank purchase rate of Rs.45.10will be used. Bankwill
deduct the purchasemargin of 0.15%. Grossamount=45.10x10000=451000:
Net amountwhichwillbe creditedto customer's account = 451000- 676.50(0.15%margin) = 450323.50

Case 4
Acustomerwants to book the following forward contracts:
(1) Forward purchase ofUSD50000fordelivery 31.dmonth(2) Forwardsale ofUSD50000 for delivery 2ndmonth.
Givenspot rate=45.1000/45.1200. Premium=1m- 0800/0900,2m- 1700/1900and3m- 2800/2900.Exchangemargin=forpurchase- 0.20%and
for sale- 0.25%.
01What is the rate for forward purchase transaction:
a) 45.4233 b) 45.2705 c) 45.1795 d) 45.1700
02What is the rate for forward sale transaction:
a) 45.4233 b) 45.3243 c) 45.4882 d) 45.3456
Ans. 1-c 2-a Explanations:
1. For purchase the spot rate = 45.1000
Add2mpremium =00.1700(premiumfor2monthsonlytobeaddedinpurchaseasbillmaybe
givenonanydayof3'dmonthincludingon13tday) Total =45.2700
Lessmargin of 0.20% = 00.0905 Rate =45.1795
2. For sale the spot rate = 45.1200 Add 2mpremium = 00.1900 (premiumfor full period of 2months only to be added in
sale) Total=45.3100 Addmargin of 0.25%= 00.1133 Rate =45.4233

Case 5
Following are the Inter bank quotes on a certain date: Spot USD 1NR 44.60/65
1month8/10 2month18/20 3month28/30
SpotGBPUSD1.7500/7510 1month30/20 2-month50/40 3month70/60
Alltheabovedifferencesareforthemonthandfixeddatesandthebankmarginis3paise.
01Anexporterhaspresentedanexportdemandbill(sightdocument)forUSD300000underirrevocableletterofcredit.Whatwillbetherateatwhichthe
documentswillbenegotiated?
a) 44.5700 b) 44.6000 c) 44.6500 d) 44.6800
02- An Exporter has submitted 60 days usance bill for USD 25000 for purchase. At what rate the document will be purchased?
a) 44.7500 b) 44.7800 c) 44.8400 ' d) 44.8700
03 Your bank has opened a letter of credit for import at the end of 2 months for GBP 30000. At what rate, the forward exchange
will be booked?
a) 78,4700 b) 78,4725 c) 78,6300 d) 78,6325
04 If the exchange margin is 3 Paise for buying as well as selling, what is the bank's spread in % on customer transaction?
a) 0.2465 b) 0.3000 c) 0.6000 d) 0.6275
05Acustomer tenders exportbillforGBP10,00,000payable45days fromsight. Thetransitperiodis 15dayshewants toretain10%ofbill valueinthe
foreigncurrency.Bank'smarginis 10paise.Whatwillbecreditedto customer'saccount?
a) 71310030 b) 70317630 c) 70110270 d) 70018510
Ans.1-a 2-a 3-b 4-a 5-b
Explanations:
1. It is a demand bill which means the payment is immediate upon negotiation. So, spot rate will be applied, which is USD/INR
SPOT 44.60/44.65.
Being an export bill, frombank's pointof view, it is a buying transaction.HenceBuying (Bid)Rateof 44.60(andan inter-bank rate)willbe
applied. To arrive at the customer rate, themarginwillbededucted.
inter Bank Rate 44.6000 Less : Margin 00.0300 Customer Rate 44.5700
2. The payment terms in this case are 60 days usance. Hence, 2 months forward rate will be applied, which will be calculated as
under:

Spot USDIINR 44.6000/44.6500 Forward 2Months 00.1800100.2000 (small/Big> Premium>Add)
Total 2Months 44.7800/44.8500 Being an export bill, from bank's point of view, it is buying of FC. Hence Buying (Bid) Rate
will be applied, which is 44.78. To arrive.at the customer rate, exchange margin will be deducted. Inter Bank Rate 44.7800
Less:Margin 00.0300
Customer Rate 44.7500
3. The fetter of credit is for 2months.Hence, 2months forwardratewill bea appliedwhichwillbe calculated onthebasisof 2MonthsGBP/INR
rate througha cross rate (GBP/USDandUSD/INR rates).
USD/INR SPOT 44.6000/44.6500 Forward 2Months 00.1800/00.2000 (Small/Big-> Premium->Add)
Total 2Months 44.7800/44.8500 GBP/USDSPOT1.7500/1.7510
Forward-2Months 0.0030/0.0020(Big/Small->Discount ->Less) Total 2Months 1.7470/1.7490
It is an import transaction and frombank's point of view, it is selling. Hence selling (offer) Ratewill be applied.
GBP/INR = GBPIUSD x USD /INR =44.8500X1.7490 =78.44265
This is an inter-bank rate. To arrive at the customer rate, exchangemarginwill be added.
Inter Bank Rate 78.4427 Add:Margin 00.0300 Customer Rate 78.4727 rounded to 78.4725
4. USDANIR Spot 44.6000/44.6500 inter Bank Buying Rate 44.6000
Less: ExchangeMargin 00.0300 Merchant Buying Rate 44.5700
Inter bank Selling Rate 44.6500 Add: ExchangeMargin 00.0300
Merchant Selling Rate 44.6800
%Spread=((SellingRate-BuyingRate) X100)1/{(SellingRate+BuyingRate)/2}
=((44.68-44.57)X100))/{44.68+44.57)/21 =00.11X100/44.625 =0.2465%
5. TheBill period is 45Days. The transit period is 15Days.
Total period is 2 months. Hence, 2 months forward rate will be applied. 2Months GBP/INIR rate is required for which cross-rate
will be calculated.
USD/INR SPOT 44.6000/44.6500 Forward Points 2Months 00.1800/00.2000 (Small/Big->Premium->Add)
Spot 2Months 44.7800/44.8500 GBP/USD SPOT 1.7500/1.7510
Swap Points 2months 0.0030/0.0020 (Big/Small-> Discount->Less) Outright 2Months 1.7470/1.7490
Being an export frombank's point of view, it is Buying. Hence Buying (Bid) Ratewill be applied).
GBP/INRBID = GBP/USDBID X USD/INRSID =44.7800X1.7470 =78.2307
This is an inter-bank rate. To arrive at the Customer Rate, Exchangemarginwill be deducted.
Inter Bank Rate 78.2307 Less: Margin 00.1000 Customer Rate 78.1307
The bill is for 10,00,000 GBP. Of this, the customer wants to retain 10% in EEFC account. Hence he would be converting 9,00,000
GBP.For 9,00,000GBP, his accountwould be creditwith = 78.1307 X 900000 = Rs.70317630

Case 6
An importer customer,wants to retire an import bill of Pound Sterling 100000 drawn under letter of credit opened by you, and payable on
demand onOct, 12.2012. The TTmargin is 0.10%. The inter-bank rates areGBP/USD= 1.5975/1.6000 andUSD/1NR = Rs.44.90/45.00.On the
basis of given information, answer the following questions.
01 What rate will be quoted by the bank for this transaction in terms of GBP/INR without taking into account the TT margin:
a) Rs.71.7276 b) Rs.71.9085 c) Rs.72.0000 d) Rs.72.0720
02 What rate will be-quoted by the bank for this transaction in terms of GBP/1NR after taking into account the TT margin:
a) Rs.71.7276 b) Rs.71.9085 c) Rs.72.0000 d) Rs.72.0720
03 What amount will be debited to cash credit or overdraft or current account of the customer for retirement of this bill:
a) Rs.7000000 b) Rs.7207200 c) Rs.7218300 d) Rs.7222070
04 If this bill is not retired by the importer customer, the crystallization of this import bill will be on which of the following dates:
a) Oct 12, 2012 b) Oct 21, 2012 c) Oct 22, 2012 d) Nov 12, 2012
Ans. 1-c 2-d 3-b 4-c
Explanations:
1. This is a sale transactionfor thebank.Bankwillpurchase pounds (GBP) atmarket selling rate andwill sell theUSDtothecustomer to purchase
pounds. The rate takenwill be 1.6000 and 45.00.Hence theGBP/INR = 1.6000 x45.00 = 72.00. Further bankwill addmarginof 0.10%which
will be0.0720. Thetotal rate = 72.00 + 0.720. The customerwouldpay = 72.072 x 100000 =Rs.7207200
2. Thisisasaletransactionforthebank.Bankwillpurchasepounds(GBP)atmarketsellingrateandwillselltheUSDtothecustomertopurchasepounds.
Theratetakenwillbe1.6000and45.00.HencetheGBP/INR=1.6000x45.00=72.00.Furtherbankwilladdmarginof0.10%whichwillbe0.0720.The
totalrate=72.00+0.720=72.072.
3. Thisisasaletransactionforthebank.Bankwillpurchasepounds(GBP)atmarketsellingrateandwillselltheUSDtothecustomertopurchasepounds.
Theratetakenwillbe1.6000and45.00.HencetheGBP/1NR=1.6000x45.00=72.00.Furtherbankwilladdmarginof0.10%whichwillbe0.0720.The
totalrate=72.00+0.720.Thecustomerwouldpay=72.072x100000=Rs.7207200
4. Thebill is to be paidon demand Le.Oct 12, 2012.As per FEDAI rule,wherethedemandimport billsdrawnunder LCarenot retiredon
demand, these arerequired to be crystallizedwithin10 days fromthedateof demand.Hence the latest date bywhichit shouldbe crystallized

isOct 22, 2012. (Forusanceimport bills the crystallisationwillbe doneon duedate.

Case 7
OnApr15,2012,XYZLtdexpectstoreceiveUSD20000withinJuly2012.ThecompanywantstobookaforwardcontractforJuly2012. TheUSD/1NR
inter-bankspot rateisRs.45.10/20.Theforwardpremiumis18/20paiseforMay,31/33forJuneand45/47for July.Themargintoberetainedbythe
bankis0.10paiseperUSD.
01What istheFCrateatwhichtheforwardcontractwillbebookedifthemarginisnottakenintoaccount:
a) Rs.45.31 b) Rs45.41 c) Rs.45.55 d) Rs.45.57
02What is theFCrateatwhichtheforwardcontractwillbebookedifthemarginis takenintoaccount
a) Rs.45.31 b) Rs45.41 c) Rs.45.55 d) Rs.45.57
Ans.1-b 2-a
Explanations:
1. Forcalculatingtheforward,thebankwilltakeintoaccount theforwardpremiumforJuneasamountcanbe receivedonanydayinJulyincludingft
July.Thusthepremiumamount is31paise.Theratewouldbe:
Spot rate = 45.10 Forwardpremiumfor June =00.31(premiumfor Julywillnot be paid as delivery isduring July) Total =45.41
2. Forcalculatingtheforward, thebankwilltakeintoaccounttheforwardpremiumforJuneasamountcanbe
received on any day in July including 1st July. Thus the premiumamount is 31 paise. The rate would be:
Spot rate = 45,10
Forward premiu=mfo0r0.J3u1n
Total = 45.41
LessMargin = 00.10
Rate to be
quoted
= 45.31

Case 8

Theimporter requests on Sep 01, 2012 to book a forward contract forpayment of an import billofUSD50000 duefor Dec 15, 2012. Spot rate
USD/INR = 45.10/20. Forward premiumfor Sep10/14 paise,Oct 22/24 paise,Nov 33/35 paise,Nov toDec 15-12/14 paise.Bank is to chargemargin
of 0.20%.
01 Without taking into account themargin, the ratethatwill bequoted by thebank is :
a) Rs.45.2000 b) Rs.45.5500
c) Rs.45.6900 d) Rs.45.7814
01 By taking into account themargin, the ratethatwillbe quoted by the bank is :
a) Rs.45.2000 b) Rs.45.5500
c) Rs.45.6900 d) Rs.45.7814-
Ans. 1-c 2-d
Explanations:
1. Thisis FCsaletransaction.HencebankwillusetheSpot rate=45.20.andpremiumupto
Dec15,willbeadded.Theratewouldbe:45.20marginof 0.20%i.e.0.09138isadded, the
ratewouldbe=45.7814.
2. Thisis FCsafetransaction.HencebankwillusetheSpot rate=45.20.andpremiumupto
Dec15,willbeadded.Theratewouldbe:45.20marginof 0.20%i.e.0.09138isadded, the
ratewouldbe=45.7814.
To calculate the rate Nov premium+ 0.35
+ 0.14 = 45.69.When the
To calculate the rate Nov premium+ 0.35
+ 0.14 = 45.69.When the

Case 9
Your correspondent bank inUKwants to credit Rs.50million in itsNOSTROaccountmaintained by you in NewDelhi. The bank is ready to credit
the equivalentUSDin you NOSTROaccount in London. The inter-bank rate is USDrate is Rs.45.10/15. If exchangemargin is ignored, howmuch
amount, the correspondent bankwill credit to the NOSTROaccount in London and atwhat rate.
a 1108647.45 b. 1107419.71 c 1107022.13 d. inadequate information tomakethecalculation.
Ans. 1-a
Explanations:
For the bank, it is a purchase transaction as bank is purchasing dollar and giving rupee.Hence the rate thatwill
be applicable is Rs.45.10. The FC value of Rs.50million = 50000000/45.10 = 1108647.45.

Case 10
M/s XYZ imported goods worth Japanese Yen (JPY) 50 million. They request to remit the amount. The USDANR rate is
Rs.45.1500/1700 and USD/JPU is 91.30/50. The bank will load a margin of 0.20%.
01What ratewill be quoted (per 100 yen)?
a) Rs.49.0456 b) Rs.49.4743 c) Rs.49.5730 d) Rs.49.8712

02What amount theimporter has to pay in Indian currency?
a) Rs.2472100 b) Rs.2478500 c) Rs.2428400 d) Rs.2408300
Ans. 1-c 2-b Explanations:
1. JPY is to be sold against rupees forwhich no direct rate is available. Itwill be calculated as a cross rate. Bank need to buy JPY againstUSD
andUSDagainst rupees. Hence the following ratewill be used forUSD/INR 45.1700 (themarket selling rate) and forUSD/JPY 91.30 (the
market selling rate being lower in this case).
Rate = 45.1700/91.30 = 0.494743 and for JPY 100 the same will be Rs 49.4743 (As per FEDAI Rules, JPY is quoted as per 100
yen)
2. JPY is to be sold against rupees for which no direct rate is available. It will be calculated as a cross rate. Bank need to buy JPY
against USD and USD against rupees. Hence the following rate will be used for USD/INR 45.1700 (the market selling rate) and
for USD/JPY 91.30 (the market selling rate being lower in this case).
Rate = 45.1700/91.30 = 0.494743 and for JPY 100 the same will be Rs 49.4743 (As per FEDAI Rulet, JPY is quoted as per 100
yen).
Tothismarginof 0.20%will beaddedwhichworksout to0.0989.
Hencetheratewillbe49.4743+.0989=49.5732roundedof to49.5730
TotalRupeepayment=5,00,00,000x49.573/100= 24786500

Case 11
Bank had booked a forward purchase contract 3months back at Rs.45.60, for delivery 3 days later forUSD 10000. Due to delay in realization of
export bill, the customer has requested-for cancellation of the contract and re-book it for onemonth fixed date or option contract beginning
onemonth fromspot date. The inter-bank spot rate is 45.2000/2200.Onemonth forward premiumis 0800/1000 paise. The TT selling and
buyingmargin 0.20%
01Whatwill be the rate atwhich the contractwill be cancelled:
a) 45.2200 b) 45.2000 c) 45.3104 d) 45.3908
02What amountwill be debited or credited to customer account being difference:
a) Rs.3202 debited b) Rs.3202 credited c) Rs.2996 credited d) Rs.2996 debited
03Atwhat rate, the contractwould be re-booked:
a) 45.2200 b) 45.2000 c) 45.3104 d) 45.3908
Ans. 1-c 2-c 3-c Explanations:
1. The contractwillbe cancelledat TT selling ratei.e. 45.2200+0.20%margini.e0.0904 = 45.3104
Theamount at contracted rate of 45.60 = 45.60x 10000= 456000 The amount at cancelled
rate of 45.3104=453104
Difference =Rs.2996,whichwould be credited to customer account.
2. The contractwillbe cancelledat TT selling ratei.e. 45.2200+0.20%margin = 0.0904 = 45.3104
Theamount at contracted rate of 45.60 = 45.60x10000 = 456000 Theamount at cancelledrate
of 45.3104=453104
Difference =Rs.2996,whichwould be credited to customer account.
3. Forbookingof contract, thespot rate=45.2000
Add one month premium = 00.0800
Total =45.2800
Less inter-bankmarginat0.20%=00.0905
Rate = 45.1895

Case- 12
international Bank successfully contracted an FCNR (B) deposit of 10million USD for a period of 5 years. Out of these funds, the bank retains
USD 4million as depositwith a high rated US bank in its NOSTROaccount and converts the remaining amount to Indian currency at prevailing
USD rate = Rs.46. On the basis of the given information, answer the following questions:
01 f the foreign currency ratemoves to Rs.46.50:
a) the bank.will gainRs. 3mio(million)b) the bankwill lose Rs. 3mio(million)
c) thebankwill gainRs.6mio(million)d) the bankwill lose Rs.6mio(million)
02What typeofpositionthebank ishavingpresently after this transaction?
a) anoversoldpositionofUSD4million b) anoversoldpositionofUSD6million c)anoverboughtpositionofUSD6million d) anoverboughtposition
ofUSD6million
03IftheforeigncurrencyratemovestoRs.45.00:
a) thebankwillgainRs.3mio(million) b)thebankwilllossRs.3mio(million) c)thebankwillgainRs.6mio(million) d)thebankwilllooseRs.6mio(million)
04Thesquareitsposition,thebankwillhavetoundertakewhichofthefollowingtransaction?
a) AcquireUSDassetsofatleastUSD6million b)AcquireUSDassetsofat leastUSD4million
c)AcquireUSDliabilitiesofat leastUSD4million d)AcquireUSDliabilitiesof at leastUSD6million

05 If the bank decides to invest the amount received as FCNR deposit in a 3-year US govt. security at 6 months LIBOR related rate
of interest, the bank faces the following type of risk?
a) foreign exchange risk b) liquidity risk c) basis risk d) no risk
A n s . 1 - b 2 - b 3 - c 4 - a 5 - c

CASE STUDIES ON LETTER OF CREDIT

Case 1
M/sExportsPrivateLimitedhavereceivedaletterofcreditforexport-oftextileitemsforanamountof$50000approximately.Thecompany
manufacturedthegoods,madetheshipmentandpresentedthedocumentsfornegotiationtothenegotiatingbankforatotalinvoicevalueof$52356.
Thenegotiatingbankrefusedtonegotiatethedocumentastheamountexceededtheamountofletter forcredit.Whatisthepositionofexporterinthe
givensituation:
a) Negotiatingbankhasalldiscretiontopointoutanydiscrepancy.Hence,itneednotpay.
b) Thediscrepancypointedoutbythenegotiatingbankisnotcorrect.Henceitshouldpay.
c) Thenegotiatingbankshouldseekadviceoftheopeningbankinsuchmatters
d) Theinformationgivenisincompletetotakeadecision.
Answer:
Solution:Thedecisionofthenegotiatingbankinrefusingtonegotiate.thedocumentsonthebasisofvariationintheamountisnotcorrect.AsperArticle30of
UniformCustomsandPracticesforDocumentaryCredits600,thewords"about"or"approximately"usedinconnectionwiththeamountofthecreditorthe
quantityortheunitpricestatedinthecredit,aretobeconstruedasallowingatolerancenottoexceed10%moreor10%less,thantheamount,thequantityor
theunitpricetowhichtheyrefer.
Hence the amount stated in the invoice is well within the tolerance of 10% and objection raised by the bank is not correct.

Case 2
M/sExportsPrivateLimitedreceivedaletterofcreditforexportofcertainproductsbuttheletterofcreditdoesnotstatethequantityintermsofa
stipulatednumberofpackingunitsorindividualitems.Theexportermanufacturedthegoodsandpresentedthedocumentsfornegotiationwhichhave
beennegotiatedbythenegotiatingbank.However,theopeningbankrefusedtohonourthedocumentsonthepremisethatthereisvariationofaround3
percentinthequantityofgoodssupplied.Thenegotiatingbankdemandsthereturnofmoneyfromtheexporter.Whatistheexporter'spositioninthis
case:
a) Once the documents have been found correct, the negotiating bank cannot ask for refunds of the money from the beneficiary
b) If theapplicant refuses topay, thebeneficiarywillhavetoreturnthemoney
c) The objection raised by the opening bank is justified and this should have been seen by the negotiating bank before hand
d) Theopeningbank'sobjectionisnotjustifiedandithastopaythedocuments
Answer:
Solution:Thedemandofthenegotiatingbankforrefundofthemoneyfromtheexporterisnotjustified.AsperprovisionsofArtide30ofUniform
CustomsandPracticesfordocumentaryCredits(UCPDC-600),atolerancenottoexceed5%moreor5%lessthanthequantityofthegoodsisallowed,
providedthecreditdoesnotstatethequantityintermsofastipulatednumberofpackingunitsorindividualitemsandthetotalamountofthedrawings
doesnotexceedtheamountof the,credit.Inthegivencase, thequantityvariationfallswithinthetolerancelevel.Thenegotiatingbank,insteadofseeking
refundfro-mtheexportershouldtakeupthematterwiththeissuingbankforpayment.
Case3
InternationalBank,NewDelhi receivedaletterofcreditissuedbyabankinUKinfavourofM/sExportsPrivate
Limited, a customerof InternationalBank.Thenegotiationis restrictedtoInternationalBank.Onthedateof
receiptofLC,riotstookplaceinthelocalityWherethebranchofthebankislocated.AsaresulttheLCcouldnotbeadvisedbythebanktotheexporter
immediately.LateronwhenthesituationbecamenormalthebankadvisedtheLCtotheexporterbutbythattimetheexpirydatefornegotiationof
documentshadexpired.TheexporterinsistsonnegotiationofdocumentsbytheInternationalBank,asdelayisnotonthepartoftheexporterbutonthe
partofInternationalBank.WhatisthepositionoftheInternationalBankvis-à-vistheexporterinthegivensituation:
a) InternationalBankisliableduetowhichit shouldnegotiatethedocuments
b) ExportersPvtLimitedhastherighttogetthepaymentofthedocuments
c) International Bank is not liable
d) Giveninformationisnotenoughtotakeanydecision
Answer: c
Solution:TheinsistenceoftheexportertonegotiatethedocumentsisnotcorrectwhenthedateofnegotiationoftheLChasexpired.AsperArticle36of
UniformCustomsandPracticesforDocumentaryCredits(UCPDC600),abankassumesnoliabilityorresponsibilityfor theconsequencesarisingoutofthe
interruption
ofitsbusinessbyactsofGod,riots,civilcommotions, insurrections,wars,actsofterrorism,orbyanystrikes.orlockoutsoranyothercausesbeyondits
control.Abankwillnot,uponresumptionofitsbusiness,honourornegotiateunderacreditthatexpiredduringsuchinterruptionofitsbusiness.Under
thegivencircumstances,thebankhasnoobligationtonegotiatethedocumentsandmake.thepaymentsincethecredithas-expired.Thebeneficiaryhas
toget thenegotiationdateextendedbyamendmentoftheLC.
Case 4

M/sExportsPrivateLimitedhavereceivedaletterofcreditintheirfavourforexportofcertaingoodstoUK.Thedateofexpiryofthecreditisaround31st
December2011.Sincetheprocessinvolvedinmanufacturingofgoodswaslittlelonger,theexportercouldpresentthedocumentsfornegotiationon3rd
January2012.Thedocumentswerenegotiatedbythenegotiatingbankunderreservetowhichtheexporterobjected.Intheopinionof theexporter,
thereisnodeficiencyinthedocumentsandintheopinionof thebank,thedocumentshavenotbeenpresentedfornegotiationintime.Whatisthe
positionof thebankandtheexporter:
a) Bank has to negotiate the documents as it gets 5 banking days to check the documents and the documents have been
presented during that period.
b) The beneficiary has the right to present the documents within 5 calendar days since date is written as around Dec 31. Hence,
the negotiating bank cannot refuse payment
c) Thebankisnotunderobligationtonegotiatethedocumentas thelastdatefornegotiationisover
d) Thebankshouldseekinstructionoftheopeningbankandapplicantandmoveaccordingly.
Answer:
Solution:Thestandtakenbythebankthatthedocumentshavebeenpresentedafterexpirydate,isnotcorrect.AsperArticle3(Interpretations)of
UniformCustomsandPracticesforDocumentaryCredits(UCPDC600),theexpression'tonorabout"orsimilar,willbeinterpretedasastipulationthatan
eventistooccurduringaperiodoffivecalendardaysbeforeuntilfivecalendardaysafterthespecifieddate,bothstartandenddatesincluded.The
documentshavebeenpresentedbytheexporterwithin3calendardaysafterthespecifieddatei.e.Dec31,2011.Hence,thebankshouldnegotiatethe
documentsifotherwiseinorder.
Case 5
PopularBankissuedanLCofUSD50000onJan05,2012,infavorsofJohnandJohnofLondon.Thelast-dateforshipmentisJan15andlastdatefor
negotiationisJan31,2012.ThegoodswereshippedonJan02,2012anddocumentswerepresentedforshipmentbythebeneficiaryfornegotiationto
SouthHallBankonJan14,2012,whichwerenegotiatedonJan16,2012.WhenthedocumentsweresenttoPopularBankforreimbursementbythe
SouthHallBank,theopeningbankfoundthefollowingdiscrepancies:
1. ThedateofshipmentasJan02,2012whilethedateofLCwasJan05,2012.
2. The date of invoice was Jan 03, 2012 and date of packing list and inspection certificate was Dec 31, 2011. The opening
bank returned the documents to the negotiating bank.
a) The return is not justified due to which the negotiating bank should send the documents back to opening bank for payment
b) Thereturnisjustified,asthedateofLCissubsequenttodateofdocuments
c) Thereturnisjustified,asthedateofdifferentdocumentsisdifferent
d) Theopeningbankshouldseekopinionoftheapplicantandthentakedecision
Answer: a
Solution:Thediscrepanciespointedoutbytheopeningbankarenotjustified.AsperArticle14ofUCPDC600, thedocumentsunderanLCcanbedated
priortothedateofLCbuttheseshouldnotbedatedlaterthanthedateofpresentation.Further,Datain adocument,whenreadincontextwiththe
credit, thedocumentitselfandinternationalstandardbankingpractice,neednotbeidenticalto,butmustnotconflictwith,datainthatdocument,any
otherstipulateddocumentorthecredit.Therefore,ifthedocumentsdonotcarryanyotherdiscrepancy, theopeningbankortheapplicantcannotrefuse
payment,onthisbasis.
Case 6
AnLCprovidesforshipmentof500piecesof trousersin200cartons.Italsoprovidesthatpartialshipment isnotallowed.Thebeneficiaryhandsover
100cartonstotheshippingcompanyonJul10andanother100cartonsonJul16.TwobillsoffadingwithdatesJul10andJul16,areissued.The
cartonsaretobecarriedinasinglevesseltosailonJul20.
Thedocumentsarenegotiatedbythenegotiatingbankbutthesearereturnedbackbytheopeningbank,statingthattheLCdidnotpermitpartial
shipment:
a) Openingbankcannotbeforcedtopaybecausethepart shipment isnotpermitted
.b) Openingbankshouldpay, as it isnotpartial shipment, sincevessel isone
c) Bynegotiatingdefectivedocuments, thenegotiatingbankhasmademistake,henceit cannot forcethe
 openingbank toreimburse
d) Negotiatingbankhasmademistake.It shouldrecover thepaymentfromthebeneficiary
Answer:
Solution:AsperArticle31ofUCPDC600,documentswith2ormoresetsof transportdocuments coveringshipmentof goodsonthesamemeans
of transport andsamejourney, arenot consideredpartial shipment.Hence, thestandtakenby theopeningbank isnot correct.
Case7
UniversalBank(theissuingbank) receivedthedocumentsunder LCfromPopularBank(thenegotiatingbank)onDec22(Tuesday). It tookonedayto
checkthedocumentsandforwardedthedocumentsforacceptancebytheapplicant.OnDec29, theapplicantpointedoutthattheinsurancepolicy
wasinacurrencydifferent fromtheoneasmentionedinLC.(Dec25wasaholidayduetoXmasandDec27wasSunday).Theopeningbank
immediatelyinformedthenegotiatingbankaboutthisdiscrepancybywayofanEmailandsoughtdirectionsfordisposalofthedocuments.The
negotiatingbankpointedoutthattheopeningbank couldconveytheobjectionifany,within5daysandnotlater,duetowhichitshouldmakethe
payment:

--a) Observationmadebythenegotiatingbankisnotcorrect. Ithasreceivedtheobjectionintime.
b) Observationmadebythenegotiatingbankiscorrect.Openingbankhasconveyedtheobjection2days
late.
c) Observationmadebythenegotiatingbankisnotcorrect.Itshouldconveythistothebeneficiaryand
recovertheamount
d) Losswouldbetotheaccountofapplicant,ashetookmorethan5days.
Answer: a
Solution:AsperArticle16ofUCPDC,theissuingbankgets5bankingdaystodeterminewhetherthedocumentscarrydiscrepancyornot.Dec25being
XmasholidayandDec27beingSunday(whicharetobeexcludedfromcounting),theissuingbankconveyedthediscrepancywithin5bankingdays.
Hencenegotiatingbankcannotrefutetheclaimoftheopeningbank.

EXPORTFINANCE
Case-8

Anexporterapproachesthepopularbankforpre-shipmentloanwithestimatedsalesofRs.100lakh.ThebanksanctionsalimitofRs.50lakh,with
followingmargins:Pre-shipmentloanonFOBvalue—25%;ForeignDemandBill-10%;Foreignusancebilis—20%.
ThefirmgetsanorderforUSD50,000(CIF)toAustralia.On1.1.2011whentheUSD/INRratewasRs.43.50perUSD,thefirmapproachedtheBankfor
releasingpre-shipmentloan(PCL),whichisreleased.
On31.3.2011,thefirmsubmittedexportdocuments,drawnonsightbasisforUSD45,000asfullandfinalshipment.Thebankpurchasedthedocuments
atRs.43.85,adjustedthePCLoutstandingandcreditedthebalanceamounttothefirm'saccount,afterrecoveringinterestforNormalTransitPeriod
(NTP). The documents were realized on 30.4.2011 after deduction of foreign bank charges of USD 450. The bank adjusted the
outstanding post shipment advance. against the bill. Bankchargedinterestforpre-shipmentloan@7%upto90daysand,@8%over90days
upto180days.ForPostshipmentcredit,theBankchargedinterest@7%fordemandbillsand@7.5%forusance(D/A)documentsupto90daysand
@8.50%thereafterandonalloverdues,interest@10%.
01 What is the amount that the Bank can allow as PCL to the exporter against the given export order, considering the profit
margin of 10% and insurance and freight cost of 12%?
a) Rs.2200000 b) Rs.1650000 c) R6.1485000 d) Rs.1291950
02What is the amount of post shipment advance that can be allowed by the Bank under foreign bills
purchased, for the bill submitted by the exporter?
a) Rs.19,80,000 b) Rs.17,75,925 c) Rs.19,73,250 d) Rs.21,92,500
03 What will be the period for which the Bank charges concessional interest on DP bills, from date of purchase of the bill?
a) 90 days b) 25 days c) 31 days d) Up to date of realization
04 in the above case, when should the bill be crystallized (latest date), if the bill remains unrealized for over two months, from the
date of purchase-(ignore holidays)?
a) On 30.4.2011 b) On 24.4.2011 c) On 24.5.2011 d) On 31.5.2011
05 What rate of interest will be applicable for charging interest on the export bill at the time of realization, for the days beyond
Normal Due Date (NDD)?
a) 8% b) 7% c) 7.5% d) 10%
Ans. 1-d 2-c 3-b 4-c 5-d Explanations:
1. FOBvalue=
CIF Value i.e. 50000x43.5 = 2175000
Deduct Insurance & freight 12% of 2175000 = 261000
Balance = 1914000
Deduct profit margin 10% of 1914000 = 191400
Balance = 1722600
Less Margin 25% = 430650
PCL = 1291950
2. 45000x43.85=1973250
3. Concessional• rate will be charged for normal transit period of 25 days and there after overdue interest will be charged.
4. Crystallisationwillbe donewhen the billbecomesoverdueafter 25 daysof normal transitperiod.Date of overduewillbe25.4.2011. if bill
remains overdue, itwillbecrystalisedwithin30 days i.e. upto 24.5.2011.
5. Rate of interestwillbe 10%as theoverdueinterest is statedas 10%in thequestion.

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CASE STUDIES ON DOCUMENTARY CREDITS AND UCP600

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