CASE STUDIES ON DOCUMENTARY CREDITS AND UCP600

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

Under the documents required a LC calls for a Bill of Lading.

Bill of Lading submitted with the documents is signed by a forwarder as carrier.

Is it a discrepancy?

Article 20 UCP600

CASE STUDY 8

L/C requirement: invoices in 3 fold and Legalized by Chamber of Commerce.

Beneficiary submits invoices with only one legalized and others without being legalized.

Is it a discrepancy?

Article 17e. UCP600

CASE STUDY 9

LC calls for a Beneficiary's certificate stating the expiry date (of the product).

The certificate presented states only the month and the year of expiry.

Is it a discrepancy?

Bankers are expected to have a certain amount of general knowledge and common sense

CASE STUDY 10

The documents required in a transferable LC calls for an Inspection Certificate issued by the First

Beneficiary.

At the request of the First Beneficiary LC is transferred to a Second Beneficiary without calling for

the Inspection Certificate, which the first beneficiary undertakes to submit along with drafts and

invoices to be presented for substitution.

Has the Transferring Bank acted in aprudent manner.

Sub-article 38g of UCP600

CASE STUDY 11

A LC states the last date for shipment as 09 November 2014 and the expiry as 30 November 2014,

is silent on the period of presentation and also states ‘Stale Bills of Lading Acceptable”.

Documents presented on 01 October 2014 with the Bill of Lading dated 01 June 2014 refused by

the Issuing Bank stating Late Presentation (not presented within 21 days after the BL date as per

article 14.c UCP600)..

The negotiating Bank does not agree with the reason for refusal.

Should the Issuing Bank honour?

Rule A19.b ISBP745

Case Study 12

The documentary credit in question issued subject to UCP600 called for shipment from “ANY

NORTH EUROPEAN PORT” and the transport document required in field 46a was: “FULL SET OF

CLEAN ON BOARD BILL OF LADING”.

The Nominated Bank received a bill of lading evidencing shipment from Antwerp, which we found to

be within the scope of North Europe, since the geographical area of North Europe was not defined

in the Credit.

The Issuing Bank refused the documents arguing that Antwerp is not within the geographical area

or range stated in the Credit.

The Issuing Bank further argued that Belgium is in Western Europe and not in Northern Europe and

quoted an internet website (www.mapsofworld.com) where we could easily recheck.

Is the discrepancy cited by the issuing bank valid?

Analysis

UCP 600 sub-article 14 (a) states that a bank must examine a presentation on the basis of the

documents alone.

It is not a matter for the ICC Banking Commission to define or determine geographical areas or

ranges. The requirement in the credit is vague and clearly ambiguous.

In accordance with ISBP 745 Preliminary Considerations paragraph (v), the applicant bears the risk

of any ambiguity in its instructions to issue or amend a credit.

Furthermore, an issuing bank should ensure that any credit or amendment it issues is not

ambiguous or conflicting in its terms and conditions.

It should not be necessary to refer to external resources in order to determine relevant facts.

Conclusion

The applicant and issuing bank must bear the risk of ambiguity for failing to express specifically how

“Any North European Port‟ is to be defined.

In this case, the document is not discrepant.

Case Study 13

Under a credit issued subject to UCP600 by Bank V in country W available by negotiation and

expiring with Bank A in country N, Bank A added its confirmation. Upon presentation of complying

documents Bank A negotiated and discounted. Documents were refused by Bank V for the following

reason: “Health Certificate to be presented in 1 original and 2 copies but only presented in 1 original

plus 1 copy.”

Bank A stated that all required originals and copies were presented to them within the time limits

foreseen by the credit, but admitted to having made an operational mistake by leaving one copy of

the Health Certificate in their file and by only sending 1 original and 1 copy to Bank V.

Bank A requested Bank V to create a second copy on Bank A‟s account, or to instruct Bank A to

courier the missing copy, but Bank V did not provide agreement. In the absence of any instructions,

and after the expiry date of the credit, Bank A couriered the missing copy document to Bank V,

certifying on their letter that it was presented within the time limits of the credit. Bank V still refused

to honour the presentation.

Has the Issuing Bank the right to refuse the documents on the basis of the missing copy of the

Health Certificate, in spite of the fact that the missing copy was sent to them after the expiry date,

but with the declaration of the negotiating bank that the copy was presented within the time limits

foreseen under the LC?

Analysis

The credit was available for negotiation with the Nominated Bank and expired at their counters.

UCP 600 sub-article 6 (d) (ii) states: “The place of the bank with which the credit is available is the

place for presentation. The place for presentation under a credit available with any bank is that of

any bank. A place for presentation other than that of the issuing bank is in addition to the place of

the issuing bank.”

UCP 600 article 6 (e) states: “Except as provided in sub-article 29 (a), a presentation by or on

behalf of the beneficiary must be made on or before the expiry date.”

In accordance with UCP 600 sub-article 7 (c) an Issuing Bank undertakes to reimburse a nominated

Bank that has honoured or negotiated a complying presentation and forwarded the documents to

the Issuing Bank.

The Issuing Bank did not receive all the required documents and subsequently issued a refusal

notice. The Nominated Bank, after an exchange of correspondence with the Issuing Bank,

forwarded the missing copy document to the issuing bank certifying that it had been presented

within the time limits required by the credit.

Conclusion

The initial cited discrepancy is valid. However, upon receipt by the issuing bank of the missing copy

document, and on the basis that it also received a certification from the negotiating bank that the

document was presented within the time limits required by the credit, the issuing bank must

reimburse the confirming bank.

Cade Study 14

Under a credit issued by Bank V in country V available by negotiation and expiring with Bank A in

country N, Bank A added its confirmation. Upon presentation of complying documents Bank A

negotiated and discounted. Documents were refused by Bank V for the following reason: “Health

Certificate to be presented in 1 original and 2 copies but only presented in 1 original plus 1 copy.”

Bank A stated that all required originals and copies were presented to them within the time limits

foreseen by the credit, but admitted to having made an operational mistake by leaving one copy of

the Health Certificate in their file and by only sending 1 original and 1 copy to Bank V.

Bank A requested Bank V to create a second copy on Bank A‟s account, or to instruct Bank A to

courier the missing copy, but bank V did not provide agreement. In the absence of any instructions,

and after the expiry date of the credit, Bank A couriered the missing copy document to Bank V,

certifying on their letter that it was presented within the time limits of the credit. Bank V still refused

to honour the presentation.

Has the Issuing Bank the right to refuse the documents on the basis of the missing copy of the

Health Certificate, in spite of the fact that the missing copy was sent to them after the expiry date,

but with the declaration of the negotiating bank that the copy was presented within the time limits

foreseen under the LC?

Analysis

Although not indicated in the query, it is assumed that the credit was issued subject to UCP 600.

The credit was available for negotiation with the nominated bank and expired at their counters.

UCP 600 sub-article 6 (d) (ii) states: “The place of the bank with which the credit is available is the

place for presentation. The place for presentation under a credit available with any bank is that of

any bank. A place for presentation other than that of the issuing bank is in addition to the place of

the Issuing Bank.”

UCP 600 article 6 (e) states: “Except as provided in sub-article 29 (a), a presentation by or on

behalf of the beneficiary must be made on or before the expiry date.”

In accordance with UCP 600 sub-article 7 (c) an issuing bank undertakes to reimburse a nominated

bank that has honoured or negotiated a complying presentation and forwarded the documents to

the issuing bank.

The issuing bank did not receive all the required documents and subsequently issued a refusal

notice. The nominated bank, after an exchange of correspondence with the issuing bank, forwarded

the missing copy document to the issuing bank certifying that it had been presented within the time

limits required by the credit.

Conclusion

The initial cited discrepancy is valid. However, upon receipt by the issuing bank of the missing copy

document, and on the basis that it also received a certification from the negotiating bank that the

document was presented within the time limits required by the credit, the issuing bank must

reimburse the confirming bank.

Cade Study 15

Bank A (Issuing Bank) in country A issued a standby credit subject to UCP 600 which was advised

to the beneficiary in country B by Bank B (Advising Bank).

The beneficiary presented a demand under the credit which arrived at the counters of the Bank A

before the expiry date of the credit.

Bank A issued a notice of refusal on the third day following presentation stating one discrepancy:

“Original Standby LC Not Presented”.

There was no wording in the credit requiring presentation of the original Standby LC.

1) Is the discrepancy stated by the Bank A correct?

2) Can Bank A raise further discrepancies at a later date in respect of the one presentation made by

the beneficiary under the credit?

Analysis

1) The wording of the credit did not require the presentation of the original credit as part of the

claim. Unless the credit was issued by mail or in paper format, it is doubtful how the originality of the

document could be determined. Accordingly, unless otherwise specifically required within the terms

and conditions of a credit, there is no requirement for the original credit to be included in the

presentation.

2) UCP 600 sub-article 16 (c) states that when a bank decides to refuse or negotiate, it must give a

single notice to that effect to the presenter. UCP 600 clearly does not allow for further discrepancies

to be raised that were apparent at the time of the initial presentation, as is referred to within former

ICC Opinions R196, R328, R271 and TA764rev.

Conclusion

1) The discrepancy is not valid.

2) Additional discrepancies are not to be considered, as banks only have one opportunity to raise

discrepancies for each presentation.

Cade Study 16

Under a documentary credit subject to UCP 600 the beneficiary of the L/C presented, amongst

other documents, a charter party bill of lading (CPBL), made out in accordance with the terms and

conditions of the respective L/C, signed and stamped as shown hereafter:

According to UCP 600 sub-article 22 (a) (i), a CPBL must appear to be signed by any of the

following parties:

· the master,

· the owner,

· the charterer, or

· a named agent for any of the above.

The stamp shows, however, that the master is signing “On behalf of Owners”.

As this is a case not contemplated by UCP 600 sub-article 22 (a) (i) like the signing by a carrier or a

named agent for the carrier as indicated in Official Opinion 470/TA.775rev., we would like to know

the opinion of the ICC Banking Commission to this case, i.e. whether this is an acceptable way of

signing or not: If the answer is that it is not acceptable, whether it would be acceptable, if the name

of the owner(s) would be stated.

Analysis

UCP 600 sub-article 22 (a) (i) states that a CPBL must appear to be signed by:

· the master or a named agent for or on behalf of the master, or

· the owner or a named agent for or on behalf of the owner, or

· the charterer or a named agent for or on behalf of the charterer.

Furthermore, it states: “Any signature by the master, owner, charterer or agent must be identified as

that of the master, owner, charterer or agent.”

ISBP 745 paragraph G4 (b) states: “When the master (captain), owner or charterer signs a charter

party bill of lading, the signature of the master (captain), owner or charterer is to be identified as

“master” (“captain”), “owner” or “charterer”.

ICC Opinion 470/TA.775rev does not apply as it relates to a CPBL issued and signed by a carrier or

its agent.

The signature on the CPBL is identified as that of the master (captain). The master is signing for

and on behalf of the owner.

Conclusion

The document is acceptable.

Cade Study 17

The Documentary Credit issued subject to UCP 600 by an Issuing Bank located in country X on

behalf of an applicant also located in country X and confirmed by a Bank located in country Y

required in field 46a “documents required” amongst other the following document:

Quote Bank guarantee from international first class bank payable in country X equivalent to EUR

xxxxx [the guarantee indicates an amount] valid till xx.xx.xxxx [the guarantee indicates a fix date].

Unquote

The bank guarantee presented to the Confirming Bank is issued by a bank located in country Y and

states that it is subject to the laws of country Y. The wording of the presented guarantee shows the

applicant of the Letter of Credit as beneficiary of the guarantee. The amount and expiry date of the

guarantee are in compliance with the requirements stipulated in the Letter of Credit. The payment

undertaking of the guarantee is worded as follows:

QUOTE

We, xxx [the guarantee indicates the guaranteeing bank], hereby irrevocably undertake to

pay you [the guarantee is addressed and directed to the applicant of the Letter of Credit]

without delay on your first written demand for payment an amount up to xxx [the guarantee

indicates an amount] provided your demand for payment is simultaneously supported by (…)

UNQUOTE

The wording of the guarantee does neither contain an express indication that it is “payable in

country X” nor any express reference to country X being the place of payment.

The Confirming Bank accepted the presented guarantee but the Issuing Bank raised the following

discrepancy: “Bank Guarantee from international bank is not payable in country X.”. Please let us

have your official opinion whether and if so why the issuing bank was entitled to raise the

discrepancy by answering the following questions:

1. Is the guarantee only compliant if it either indicates expressly that it is “payable in country X” or

contains an express reference to country X being the place of payment? Or can it be argued that

the guarantee meets the requirement “payable in country X” because it is issued in favour of a

beneficiary located in country X and as it provides that payment thereunder has to be made to this

beneficiary?

2. Would the requirement “payable in country X” be met if the guarantee is made out as described

above but is not issued by a bank located in country Y but in country X?

3. Does the stipulated requirement “payable in country X” require the document checker to

determine whether the presented guarantee‟s place of payment is country X?

4. Could the confirming bank argue validly that the Letter of Credit does not stipulate that the

requirement “payable in country X” must be met by an express reference or wording in the

guarantee document (e.g. 46a: Bank guarantee from international first class bank indicating that it is

“payable in country X” equivalent to (…)”) and that this requirement may therefore be deemed as

non-documentary and not stated and thus be disregarded according to UCP 600 sub-article 14 (h)

5. Could the confirming bank argue validly that the checking of the document falls with respect to

the requirement “payable in country X” under the auspices of UCP 600 sub-article 14 (f) because

this requirement is worded in way that does not amount to a stipulation of the document‟s data

content ?

Analysis

The credit included, in field 46a of the MT700, a requirement for a guarantee to be issued by an

international first class bank payable in country X (the country of the credit issuing bank). Apart from

amount and expiry date, no other requirements were provided. The credit was confirmed by a bank

in country Y (the country of the credit beneficiary).

The actual guarantee that was presented to the confirming bank was issued by a bank in country Y,

stating that it was subject to the laws of country Y.

The guarantee contained a statement from the guarantee issuing bank that they irrevocably

undertook to pay the guarantee beneficiary (the applicant of the credit) without delay on first written

demand for payment. It did not include an explicit statement or reference that the guarantee was

payable in country X.

Whilst the Confirming Bank accepted the guarantee as a compliant document under the credit, the

Issuing Bank refused on the basis that the guarantee was not payable in country X.

In view of the fact that the beneficiary of the credit was located in country Y, it is not unusual that

they would use a bank in their own country to issue the guarantee, as was the case in this query.

The guarantee had been issued directly in favour of the beneficiary (the credit applicant) in country

X, and not via another bank in country X. It included a condition that payment would be made

against first written demand. It does not state a place for presentation. Because the guarantee did

not state a place for presentation, demands must be presented at the issuing bank. The issuing

bank is located in country Y.

Conclusion

1. The guarantee needed to clearly state that it was payable in country X. In order to achieve this, it

would have needed to be payable at the counters of a bank in country X, and not at the counters of

the guarantee issuing bank in country Y. The fact that the guarantee was issued directly in favour of

the beneficiary (credit applicant) in country X and was payable against first written demand, did not

fulfil this requirement.

2. If the guarantee had been issued by a bank in country X, this would have met the requirements of

the credit.

3. The place of payment of the guarantee was to be stated as “in country X‟ or determinable as

being within country X.

4. The requirement for the guarantee clearly related to a requirement for an actual document.

Consequently, UCP 600 sub-article 14 (h) is not applicable.

5. The condition in the credit “payable in country X‟ is a specific requirement that must be clearly

reflected in the guarantee document if it is to fulfil its function. The discrepancy raised by the issuing

bank is valid.

CASE STUDY 18

The relevant LC conditions:

1) (Under documents required): Full set of clean on-board marine bills of lading consigned to order,

blank endorsed, notify applicant and marked “freight payable as per charter party”

2) (Under other conditions): Charter Party BL acceptable

The presented BL shows:

a) “freight payable as per charter party”

b) signed by XXX Logistics Co Ltd as agent for carrier YYY Shipping Lines Ltd

c) the reverse page shows the shipper’s blank endorsement

d) reverse page also shows typical shipping contract terms & conditions (i.e. not the usual Charter

Party BL terms & conditions)

In short, the BL (front and back), other than the freight statement, does not display anything to

suggest that it is subject to a charter party contract.

Issuing Bank paid but deducted a discrepancy fee for the waived discrepancy of “Charter Party BL

signatory’s capacity not as master, owner, charterer or agent for any of the aforesaid”. Issuing

Bank’s position appears to be that, by virtue of the LC‟s BL freight requirement, the LC is actually

calling for a Charter Party BL. And because the BL does show such freight statement, the BL is to

be treated as being subject to a charter party contract, and therefore the BL must be signed in

accordance with Article 22 (a) (i).

Negotiating Bank of course disagreed and countered that the freight phrase was not enough

evidence that the BL was a Charter Party one. It argued that, save for the freight phrase; its terms &

conditions (on reverse page) were those of a conventional BL. If it is a conventional BL, then issuing

bank’s discrepancy is incorrect. It should be instead: “Conventional BL presented but contains an

indication that it is subject to a charter party”..

ANALYSIS

The credit required a marine bill of lading marked “freight payable as per charter party‟. In this

respect, the credit was badly worded. The presented bill of lading was marked “freight payable as

per charter party”.

ISBP 745 paragraph G2 (b) states: “A transport document, however named, indicating expressions

such as “freight payable as per charter party dated (with or without mentioning a date)”, or “freight

payable as per charter party”, will be an indication that it is subject to a charter party.

ISBP 745 paragraph G1 states: “When there is a requirement in a credit for the presentation of a

charter party bill of lading, or when a credit allows presentation of a charter party bill of lading and a

charter party bill of lading is presented, UCP 600 article 22 is to be applied in the examination of

that document.

Where a credit simply allows for or requires the presentation of a CPBL, a CPBL issued and signed

by a carrier or its agent is discrepant under UCP 600 sub-article 22 (a) (i).

CONCLUSION

The discrepancy raised by the issuing bank, “Charter Party BL signatory‟s capacity not as master,

owner, charterer or agent for any of the aforesaid”, is correct.

CASE STUDY 19

L/C available with Advising Bank by payment, however the Advising Bank did not act under our

nomination and has sent documents presented by the beneficiary to the Issuing Bank without

examining them (in accordance with beneficiary's request). No message was received from the

issuing bank, Advising Bank received a MT910 from their correspondent bank informing us of the

credit entry on our account and containing information in field 72: /EUR100 deducted as discr.fee/.

The documentary credit included the following clause: 'discrepancy fee of EUR 100.00 will be

deducted from the proceeds any drawing if documents are presented with discrepancies'

We have contacted issuing bank arguing that since they had not acted in accordance with UCP 600

sub-article 16 (c) (ii), quoting every single discrepancy they should be precluded from deducting

discrepancy fee.

An answer was received that their action has nothing to do with UCP 600 article 16 and that if we

want to find out about discrepancies we will have to ask for it. It seems that they are acting in line

with the conclusion of a/m Opinion. Nevertheless, we cannot agree with it.

In the opinion of the Issuing Bank and according to UCP600 sub-article 16 (a) an issuing bank

determines if a presentation does not comply. By deducting their discrepancy fee they obviously

wanted to indicate that the presented documents did not comply.

As per article UCP 600 sub-article 16 (b) issuing bank may in its sole judgment approach the

applicant for waiver, but that does not extend period of time mentioned in UCP 600 sub-article 14

(b), nor does it (in our opinion) annul the provisions of UCP 600 sub-articles 16 (c), (d), (e) and (f).

Achieving applicant's acceptance of discrepancies does not justify the action of not listing all

discrepancies, even when sending message indicating acceptance (such as in MT752).

Advising Bank is of the opinion that if Issuing Bank determines that presented documents contain

discrepancies, all discrepancies should be quoted either in separate MT734 or in MT752 within 5

working days. Otherwise they are precluded claiming that documents are discrepant (and

accordingly not allowed to deduct discrepancy fee)

ANALYSIS

A presentation of documents had been paid by the issuing bank deducting their discrepancy fee.

Prior to payment no notice of refusal has been sent nor had any information on discrepancies been

provided by the issuing bank.

When an issuing bank finds discrepancies in documents, it has two options available to it under

article 16: to provide a refusal message to the presenter in terms of sub-articles 16 (c) and (d) or, to

approach the applicant for a waiver without first providing a notice of refusal (sub-article 16 (b)).

When the option of approaching the applicant for a waiver is chosen, and such waiver is given and

accepted by the issuing bank, the practice is for the issuing bank to honour, and such honour will be

less any discrepancy fee that was stated in the credit.

When this course of action is taken, the issuing bank should provide the presenter, as part of their

payment message or in a separate communication, details of the discrepancies that were observed.

The presenter can then choose to dispute the discrepancies, therefore questioning the relevance of

the deduction representing the discrepancy fee. If the issuing bank does not provide such an

indication, the presenter may seek, and the issuing bank must provide, such details. The actions of

the issuing bank, as described in situation D, do not represent preclusion under sub-article 16 (f).

Conclusion:

The Issuing Bank is entitled to a discrepancy fee as outlined in the credit, but it should inform the

presenter of the discrepancies that were found, either in the advice of payment or in a separate

communication.

The issuing bank is not required to send a notice of refusal to the presenter if it elects to contact the

applicant for a waiver and to receive a waiver that is acceptable to it. Sub-article 16 (f) does not

apply in these circumstances.

If the covering schedule listed the discrepancies that the presenter had found, the Issuing Bank

should either advise the presenter that the documents were taken up despite the discrepancies that

had been identified by the presenter, or list the discrepancies for which the issuing bank had sought

waiver from the applicant.

It is only when an issuing bank does not indicate the discrepancies that there should be a need for

the presenter to seek such details. The default position is that an issuing bank, in order to justify a

discrepancy fee, should always indicate the discrepancies by one of the methods described above.

When an issuing bank has approached the applicant for a waiver, and received such waiver and

decided to act upon it, it does not need to send a notice of refusal in accordance with UCP 600 subarticle

16 (c) in order to be entitled to deduct a discrepancy fee when it honours a presentation. In

such circumstances, UCP 600 sub-article 16 (f) does not apply.

When a bank deducts a discrepancy fee on the basis of a “discrepancy fee clause‟ in a credit, it is

good banking practice to inform the presenter of any discrepancies that were found in the

documents, either in the advice of payment or in a separate communication. In the event they fail to

do so, this does not preclude them from providing such information subsequently.

https://iibfadda.blogspot.com/2019/11/caiib-bfm-case-studies.html?m=1

Articles of UCPDC 600

ARTICLES OF UCPDC 600

Article-1 : UCPDC-boo apply to any LC when its text expressly indicates that it is subject to these rules. The rules are binding on all

parties thereto unless expressly modified or excluded by the credit.

Article-2: Definitions : Advising bank, Applicant, Banking day, Beneficiary, Complying presentation, Confirmation, Confirming

bank, Credit, Honour, Issuing bank, Negotiation, Nominated, Presentation, Presenter.

Article-3 Interpretations:

 A credit is irrevocable even if there is no indication to that effect.

 Branches of a bank in different countries are separate banks.

 The expression "on or about" will be interpreted as an event to occur during a period of 5 calendar days before until 5

calendar days after the specified date, both start and end dates included.

 The terms "first half" and "second hal' of a month shall be construed respectively as the 1st to the 15th and the 16th to the

last day of the month, all dates inclusive.

 The terms "beginning", "middle" and "end" of a month shall be construed respectively as the 1st to the loth, the nth to the

loth and the 21st to the last day of the month, all dates inclusive.

Article-4 Credits v. Contracts: A credit is a separate transaction from the sale. Banks are not concerned with or bound by such

contract, even if any reference is included in the LC.

ArticIe-5 Documents v. Goods: Banks deal with documents and not with goods, services or performance to which documents

relate.

Article-6 Availability, Expiry Date and Place for Presentation: A credit must state an expiry date for presentation. An expiry date

for negotiation is deemed expiry date for presentation which must be made on or before the expiry date.

Article-7 Issuing Bank Undertaking: If stipulated documents are presented to the nominated bank or to the issuing bank, the

issuing bank must honour.

Article-8 Confirming Bank Undertaking: The confirming bank must honour the credit. It must reimburse another nominated bank

that has negotiated a complying presentation and forwarded the documents to the confirming bank.

Article-9 Advising of Credits and Amendments: A credit and any amendment may be advised to a beneficiary through an

advising bank. An advising bank advises the credit and any amendment without any undertaking to negotiate. By advising the

credit, the advising bank signifies that it has satisfied itself as to the apparent authenticity of the credit and the advice accurately

reflects the terms and conditions of the credit or amendment received.

Article-io Amendment: A credit can neither be amended nor cancelled without the agreement of the issuing bank, the

confirming bank and the beneficiary. Partial acceptance is not allowed and will be deemed to be notification of rejection of the

amendment.

Article-it Tele transmitted and Pre-Advised LC and Amendments: An authenticated teletransmission will be deemed to be the

operative credit or amendment, and any subsequent mail confirmation shall be disregarded. If it states "full details to follow" the

tele-transmission will not be operative credit or amendment.

Article-12 Nomination: By nominating a bank to accept a draft or incur a deferred payment undertaking, an issuing bank

authorizes that nominated bank to prepay or purchase a draft accepted or a deferred payment undertaking incurred by that

nominated bank.

Article-13 Bank-to-Bank Reimbursement Arrangements.: If a credit states that reimbursement is to be obtained by a nominated

bank, the credit must state if the reimbursement is subject to the ICC rules in effect on the date of issuance of the credit.

Article-14 Standard for Examination of Documents:

(a) A nominated bank and issuing bank shall each have a maximum of 5 banking days following the day of presentation to

determine if the documents are in order.

(b) A presentation must bemade by or on behalf of the beneficiary not later than 21 calendar days after the date of shipment as

described in these rules, but in any event not later than the expiry date of

the credit.

(c) A document may be dated prior to the issuance date of the credit, but must not be dated later than its date of presentation.

Article-15 Complying Presentation: a. When an issuing bank or confirming bank determines that a presentation is complying, it

must honour or negotiate the documents.

Article-16 Discrepant Documents,Waiver and Notice:

a. When a nominated bank determines that a presentation does not comply, it may refuse to honour or negotiate.

b. When an issuing bank determines that a presentation does not comply, it may approach the applicant for a waiver of

discrepancies.

Article-17 Original Documents and Copies: a. At least one original of each document stipulated in the credit must be presented.

Article-18 Commercial Invoice: (a) A commercial invoice, must appear to have been issued by the beneficiary; made out in the

name of the applicant, made out in the same currency as the credit; and need not be signed. (b) The description of the goods,

service or performance in a commercial invoice must correspond with that appearing in the credit.

Article-19 Transport Document Covering at Least Two Different Modes of Transport: The date of issuance of the transport

document will be deemed to be the date of dispatch, taking in charge or shipped on board, and the date of shipment

A transport document indicating that trans-shipment will or may take place is acceptable, even if the credit prohibits transshipment.

Article-2o Bill of Lading: a. A bill of lading, must indicate that the goods have been shipped on board a named vessel at the port

of loading stated in the credit. The date of issuance of the bill of lading will be deemed to be the date of shipment.

Article-21 Non-Negotiable Sea Waybill: It must indicate that the goods have been shipped on board a named vessel at the port

of loading stated in the credit.

Article-22 Charter Party Bill of Lading: It must indicate that the goods have been shipped on board a named vessel at the port of

loading stated in the credit. The date of issuance of the charter party bill of lading will be deemed to be the date of shipment.

Ai-tide-23 Air Transport Document: It must appear to indicate that the goods have been accepted for carriage and indicate

the date of issuance. This date will be deemed to be the date of shipment.

Artiele-24 Road, Rail or Inland Waterway Transport Documents: These must indicate the date of shipment or the date the goods

have been received for shipment, dispatch or carriage at the place stated in the credit. The date of issuance of the transport

document will be deemed to be the date of shipment.

Article-25 Courier Receipt, Post Receipt of Certificate of Posting: A courier receipt evidencing receipt of goods for transport,

must indicate a date of pick-up or of receipt or wording to this effect. This date will be deemed to be the date of shipment.

Article-26 "On Deck", "Shipper's Load and Count", "Said by Shipper to Contain" and Charges Additional to Freight: A transport

document must not indicate that the goods are or will be loaded on deck. A clause on a transport document stating that the

goods may be loaded on deck is acceptable.

Article-27 Clean Transport Document: A clean transport document is one bearing no clause or notation expressly declaring a

defective condition of the goods or their packaging.

Article-28 Insurance Document and Coverage: An insurance document can be an insurance policy, an insurance certificate or a

declaration under an open cover. Cover notes will not be accepted

(b) The date of the insurance document must be no later than the date of shipment, unless it appears from the insurance

document that the cover is effective from a date not later than the date of shipment

(c) The insurance document must be in the same currency as the credit (d) If there is no indication in the LC of the insurance

coverage required, the amount of insurance coverage must be at least no% of the CIF or CIP value of the goods.

Article-29 Extension of Expiry Date or Last Day for Presentation: If the expiry date of a credit or the last day for presentation

falls on a day when the bank to which presentation is to be made is closed, the expiry date or the last day for presentation, as the

case may be, will be extended to the

first following banking day. In such case, a nominated bank must provide a statement on its covering schedule that the

presentation was made within the time limits extended in accordance with article 29. The latest date for shipment will not be

extended as a result of article 29.

Article-30 Tolerance in Credit Amount, Quantity and Unit Prices:

(a) The words "about" or "apprx" used in connection with the amount of LC or the quantity or the unit price stated in the LC are

to be construed as allowing a tolerance not to exceed 10% more or 10% less than the amount, the quantity or the unit price to

which they refer.

(b) A maximum tolerance of 5% more or 5% less than the quantity of the goods is allowed, where the credit does not state

quantity in terms of a stipulated no. of packing units or individual items and the total amount of the drawings does not exceed

the amount of LC.

(c) Even when partial shipments are not allowed, a tolerance not to exceed 5% less than the amount of the credit is allowed,

provided that the quantity of the goods, if stated in the credit, is shipped in full and a unit price, if stated in the credit, is not

reduced or that sub-article 30 (b) is not applicable.

Article-31 Partial Drawings or Shipments: Partial drawings or shipments are allowed.

Article-32 Instalment Drawings or Shipments: If a drawing or shipment by instalments within given periods is stipulated in the

credit and any instalment is not drawn or shipped within the period allowed for that instalment, the credit ceases to be available

for that and any subsequent instalment.

Article-33 Presentation Time: A bank has no obligation to accept a presentation outside of its banking hours.

Article-34 Disclaimer on Effectiveness of Documents: A bank assumes no liability or responsibility for the form, sufficiency,

accuracy, genuineness, falsification or legal effect of any document, or for the general or particular conditions stipulated in a

document or superimposed thereon; nor does it assume any liability or responsibility for the description, quantity, weight, quality,

condition, packing, delivery, value or existence of the goods, services or other performance represented by any document, or for

the goods faith or acts or omissions, solvency, performance or standing of the consignor, the carrier, the forwarder, the consignee

or the insurer of the goods or any other person.

Article-35 Disclaimer on Transmission and Translation: A bank assumes no liability or responsibility for the consequences arising

out of delay, loss in transit, mutilation or other errors arising in the transmission of any messages or delivery of letters or

documents, when such messages, letters or documents are transmitted or sent according to the requirements stated in the

credit, or when the bank may have taken the initiative in the choice of the delivery service in the absence of such instructions in

the credit.

Article-36 Force Majeure: A bank assumes no responsibility for consequences arising out of the interruption of its business by

Acts of God, riots, civil commotions, insurrections, wars, acts of terrorism, or by any strikes or lockouts or causes beyond its

control.

Article-37 Disclaimer for Acts of an Instructed Party: A bank utilizing the services of another bank for the purpose of giving effect

to the instructions of the applicant does so for the account and at the risk of the applicant.

Article 38- Transferable Credits: A transferable credit may be made available in whole or in part to 2nd beneficiary at the request

of the first beneficiary. It cannot be transferred at the request of a second beneficiary. The first beneficiary can substitute its own

invoice and draft for those of a second beneficiary for an amount not in excess of LC.

Article-39 Assignment of Proceeds: The beneficiary can assign any proceeds to which it may be or may become entitled under

the credit.

eUCP : Supplement to UCPDC for Electronic Presentation (Version IA)

eUCP has been created to take care of the demand of the market for the presentation of electronic documents or for a mixture of

paper documents and electronic presentation. It provides definitions permitting UCP 60o terminology and providing rules to

allow both sets of rules to work together.

Article el of eUCP narrates the scope of eUCP. eUCP also deals with relationship of eUCP and UCP 600 (e2), definitions (e3),

format (e4), presentation (e5), examination (e6), notice of refusal (e7), originals and copies (e8), date of issuance (e9), transport

(elo), corruption of electronic record after presentation (en) and additional disclaimer of liability for presentation of electronic

records under eUCP (e12).

INTERPRETATIONS USED IN UCPDC-600

 A credit is irrevocable even if there is no indication to that effect.

 On or about — Such expression will be interpreted as a stipulation that an event is to occur during a period of 5 calendar days

before until 5 calendar days after the specified date, both start and end dates included.

 The words `to', 'until', 'from' and 'between' when used to determine a period of shipment include the date mentioned and

the words 'before' and 'after' exclude the date mentioned.

 The words 'from' and 'after' when used to determine a maturity date exclude the datementioned.

 The terms 'first half and 'second half of a month shall be construed respectively as the 1st to the 15th and the 16th to the last

day of the month, all dates inclusive.

 The terms 'beginning', 'middle' and 'end' of a month shall be construed respectively as the ist to 10th, the 11th to the 20th and

the 21St to the last day of the month, all dates inclusive.

 Branches in different countries are considered to be separate banks.

 The date of issuance of the transport documents will be deemed to date of despatch, taking in charge or shipped on board

and the date of shipment. If the transport document indicates, by stamp or notation, a date of despatch taking in charge or

shipped on board, this date will be deemed to the date of shipment.

 Trans-shipmentmeans unloading from onemeans of conveyance and reloading to anothermeans of conveyance (whether or not in

different modes of transport) during the carriage, from the place of dispatch taking in charge or shipment to the place of final

destination stated in the credit.

 A clean transport documents is one bearing no clause of notation expressly declaring a defective condition of the goods or

their packaging.

 If there is no indication in the credit about insurance coverage, amount of insurance coverage must be at least 110% of CIF or

CIP value of the goods.

SNAPSHOT FOR PREPARATION OF FUND FLOW STATEMENT & Fund Flow Statement analysis

SNAPSHOT FOR PREPARATION OF FUND FLOW STATEMENT

Fund Flow Statement is not an integral part of financial statements. The
lenders will have to prepare this statement on their own. The Fund flow Statement
is prepared to check the movement of long term funds between two Balance Sheet
dates and the availability of Long Term Surplus / Deficit, which must be equal to
the difference in Net Working Capital (NWC) during two Balance Sheet dates.
Liabilities are the sources for the business and assets represent the uses of funds
for the business. The funds raised on short term basis i.e. current liabilities are of
short term nature whereas the funds raised on long terms basis i.e. term liabilities
and net worth are of long term nature. Similarly, the funds deployed in the current
assets are considered as short term uses of funds and the funds deployed in fixed
assets, non-current assets and intangibles are considered as long term uses.
While preparing the fund flow statement, the movement of long term sources and
uses is to be calculated i.e. how much net long term funds are generated of
deployed in the business during the year. The very purpose of this exercise is to
know that whether the unit is able to generate sufficient long term funds to meet
out its long term requirement or not. If not then from where the funds have been
arranged to meet out its long term requirement.
The Long Term Sources can be calculated by summing the increases in term
liabilities and net worth i.e. other than current liabilities or decreases in fixed
assets, non-current assets and intangibles i.e. other than current assets. Similarly,
the Long Term Usage can be calculated by summing the decreasesin term liabilities
and net worth i.e. other than current liabilities or increases in fixed assets, noncurrent
assets and intangibles i.e. other than current assets. If the Long Term
Sources is more than the Long Term uses, there will be Long Term Surplus and if
the Long Term Sources is Less than the Long Term uses, there will be Long Term
Deficit.

Net working Capital (NWC) means the difference between current assets and
current liabilities, in other words, the long term funds available to support short
term uses. More the long term funds available to support short term uses, more
the unit will be comfortable in honoring its short term sources. As we have already
discussed that the current liabilities are the short term sources and current assets
are the short term uses, hence the difference between Long Term Sources and
Long Term Uses must be equal to difference between short term sources and short
term uses. Since the fund flow statement is prepared for the movement of figures
between two balance sheet dates, hence only the difference between two balance
sheet date figures should be taken into consideration while preparing fund flow
statement.
The Fund Flow Statement is prepared by using the following steps,
i. Capture all the long term sources from the Operating Statement e.g. Profit
After Tax, Depreciation, Amortizations, Non-Cash Charges etc.

ii. Capture all the long term uses from the Operating Statement e.g. Net Loss,
dividend payments, withdrawals etc.
iii. Capture all the long term sources / uses from the Balance Sheet
a. All the liabilities are sources of fund for the business. There are two
types of liabilities i.e. Current and Non-current. Current liabilities are
short term sources of fund whereas non-current liabilities are long term
sources of fund. Any increase in non-current liabilities (Term Liabilities &
Net Worth) will be the long term source and any decrease in non-current
liabilities will be the long term uses.
b. Similarly, all the assets are uses of funds in the business. There are two
types of assets i.e. Current and Non-current. Current assets are short
term uses of fund whereas non-current assets are long term uses of fund.
Any increase in Fixed Assets (change in gross block is to be considered as
we have already taken the depreciation as long term source from the
operating statement), non-current assets and Intangibles) will be the long
term uses and any decrease in non-current assets will be the long term
sources.
c. While considering the movement in Intangible Assets, it is to be kept in
mind that any reduction on account of amortization is not to be
considered as the same has already been considered from the operating
statement. Hence, movement on account of acquisition / disposal of
intangibles will be considered as long term source / uses.
iv. Now calculate the total long term sources and uses and find out the
difference. If the long term sources are more than long term uses, it will
result in long term surplus and vice versa.

It is expected that the long term funds generated should be sufficient to meet out
the long term requirements of the unit. Apart from meeting the requirement of
long term nature, there should be sufficient long term surplus left to meet out the
net working capital requirement.
Sometimes, it is found in the analysis of fund flow statement that there is long
term deficit. Long term deficit should not be treated as a negative sign always
rather the reasons for deficit are to be analysed critically. The deficit can be
acceptable if the short term funds (surplus liquidity) have been utilized for long
term purposes to meet out the genuine business requirement and the resultant
liquidity of the unit does not suffer adversely, meaning thereof, the current ratio
and the position of absolute net working capital should be in comfortable and
acceptable zone. Normally, it happens with the units, having conservative
approach and do not want to be over leveraged. These units first accumulate the
funds and keep them in the liquid form and whenever the requirement arises, they


use the funds as per the needs of the business. If, the long term deficit is found in
any unit, the reasons for the same are to be analysed in details as this may create
liquidity crunch in the unit. The reasons for long term deficit or reduction in the
Net Working Capital could be as follows,
Losses: Leading to reduction in reserves, which is forming part of Net
Worth, resulting decline in generation of long term funds resulting
decline in NWC.
Conversion: Some of the Current Asset becoming Non-Current (Book
Debts stretched, stocks become obsolete, etc.), resulting increase in
non-current assets i.e. long term uses.
Diversion: Short term funds are used for long term purposes but the
funds remains within the business, resulting decline in the gap between
current assets i.e. short term uses and current liabilities i.e. short term
sources.
Siphoning-off: The funds are used for unrelated activities in other words
the funds taken out from the business, resulting decline in the long term
sources.
In all the above scenarios, the Siphoning off of funds is to be considered as most
dangerous sign because it is very difficult to bring back the funds in the system,
which has already been taken out from the business. In all other scenarios, position
can be improved over time by taking corrective steps.

TT Rates and Bill Rates

TT Rates and Bill Rates:;

Following 4 types of buying and selling rates are important:
1. TT Buying rate
2. Bill Buying rate
3. TT Selling rate
4. Bill Selling rate
In Interbank market, exchange rate is quoted up to 4 decimals in multiples of 0.0025. e.g.
1USD=53.5625/5650
For customers the exchange rate is quoted in two decimal places i.e. Rupees and paisa. e.g. 1
USD =Rs. 55.54.
Amount being paid or received will be rounded off to nearest Rupee.

TT Buying Rate:::

It is required to calculate when our Nostro account is already credited or
being credited without delay e.g. Receipt of DD, MT, TT or collection ofForeign bills. This rate is used for cancellation of Forward Sales Contract.
Calculation
Spot Rate – Exchange Margin

Bill Buying Rate::

Bill Buying Rate Bill Buying rate is applied when bank gives INR to the customer before
receipt of Foreign Exchange in the Nostro account i.e. Nostro account is
credited after the purchase transaction. In such cases.
Examples are:
 Export Bills Purchased/Discounted/Negotiated.
 Cheques/DDs purchased by the bank.
Calculation

Spot Rate + Forward Premium (or deduct forward discount) – Exchange margin.

TT Selling Rate::

TT Selling Rate Any sale transaction where no delay is involved is quoted at TT selling rate.
It is desired in issue of TT, MT or Draft. It is also desired in crystallization of
Export bills and Cancellation of Forward purchase contract.
Calculation
Spot Rate + Exchange Margin

Bill Selling Rate:::

Bill Selling Rate It is applied where handling of documents is involved e.g. Payment against
Import transactions:
Calculation
Spot Rate + Exchange Margin for TT selling + Exchange margin for Bill
Selling

Examples::

Q. 1
Bank received MT of USD 5000 on 15th Sep. The Nostro account was already credited. What
amount will be paid to the customer: Spot Rate 34.25/30. Oct Forward Differential is 22/24.
Exchange margin is .80%
Solution
TT buying Rate will be applied
34.25 - .274 = 33.976 Ans.

Q. 2
On 15th July, Customer presented a sight bill for USD 100000 for Purchase under LC. How
much amount will be credited to the account of the Exporter. Transit period is 20 days and
Exchange margin is 0.15%. The spot rate is 34.75/85. Forward differentials:
Aug: .60/.57 Sep:1.00/.97 Oct: 1.40/1.37
Solution
Bill Buying rate of August will be applied.
Spot Rate----34.75 Less discount .60 = 34.15
Less Exchange Margin O.15% i.e. .0512 =34.0988 Ans.
( Transit period is rounded to next month since currency will be cheaper as it is buy transaction)

Q. 3
Issue of DD on New York for USD 25000. The spot Rate is IUSD = 34.3575/3825 IM forward
rate is 34.7825/8250
Exchange margin: 0.15%

Solution:
TT Selling Rate will Apply
Spot Rate = 34.3825 Add Exchange margin (.15%) i.e. 0.0516
TT Selling Rate = Spot Rate + Exchange Margin = 34.4341 Ans.

Q. 4
On 12th Feb, received Import Bill of USD-10000. The bill has to retired to debit the account of
the customer. Inter-bank spot rate =34.6500/7200. The spot rate for March is 5000/4500. The
exchange margin for TT selling is .15% and Exchange margin for Bill selling is .20%. Quote rate
to be applied.
Solution
Bill Selling Rate will be applied.
Spot Rate + Exchange margin for TT Selling + Exchange margin for Bill selling =
34.7200+.0520+.0695 = 34.8415 Ans.

Treasury Management

TREASURY MANAGEMENT ::

1. RBI pays interest on the cash balances in excess of which of the following to bank, of their
NDTL?
a) 2%
b) 3%
c) 5%
d) 6%
ans: b
2. while the exposure limits are generally left to the banks discretion. RBI has imposed
which ceiling of total business in a year with individual brokers.
a) 2%
b) 5%
c) 10%
d) 15%
ans : b
3. Ability of a business concern to borrow or build up assets on the basis of a given capital
is called.
a) debt service coverage ratio
b) good will
c) reputation
d) Leverage
ans: D
4. Protection of risk in a transaction usually through derevatives product is called.
a) insurance
b) swap
c) hedge
d) arbitrage
ans: c
5. For the organization point of view treasury is considered to be
a) Investment centre
b) Fund management department
c) service centre
d) commercial bank
e) Non of these

ans: c
6. A treasury transaction with a customer is known as…..
a) Marchant banking business
b) Trading business
c) investment business
d) commercial banking
e) Retail banking
Ans: a
7. Which act relating to foreign exchange has replace earlier one?
a) Foreign Exchange Management Act
b) Foreign Exchange Regulation Act
c) Both the above
d) none of these
ans :a
8. RBI has permitted banks to borrow and invest through their overseas correspondents
in foreign currency subject to which of the following ceilings.
a 25% of there Tier-I Capital
b 25% of there Tier-I Capital or USD 10 million
c 25% of there Tier-I Capital or USD 10 million whichever Is higher.
d 25% of there Tier-I Capital or USD 10 million whichever Is lower
ans-: c
9. The treasury is run by a few specialist staff engaged in high value transaction per trn size
generally not being below:
a Rs 10 million
b Rs 20 “
c Rs 50 “
d None of these
Ans : c
10 Treasury has open position which is also known as
a Trading position
b Open position
c Proprietary position
d) a & C both
e) a
ans : d

11. Security dealars deals with of the following market.
A primary mkt
B secondary mkt
C Open mkt
D OTC
E all of these
Ans: b
12. What is the minimum marketable investment in treasury…….
A Rs 5 crore
B Rs 10 “
C Rs 20 “
D Rs 50 “
E non of these
Ans ; A
13. which of the following is not a free currency in the foreign exchange market ?
A USD
B Rupee
C EUR
D All of these
Ans : b
14. which of following statement is not correct relating to TOD and TOM
A Rates are generally quoted at discount to the spot rate
B Rates are less favorable to the buyer of the currency
C Rates are generally quated at a premium to the spot rate
D Non of these
Ans : c
15 The interest rate differential is added to the spote rate of
A Low interest yielding currency
B high interest yielding currency
C Both
D non of these
Ans A
16. Buying of USD (with Rupees) in the market and selling same in forward market or vice
versa is called
A spot trn

B Forward tsn
C swap tsn
D convertible tsn
Ans: c
17 Call money refers to placement of fund……..
A same day
B overnight
C next day
D Two days
E Non of these
Ans: b
18. Notice money refers to placement of funds for period not exceeding……
A over night
B two days
C 7 days
D 10 days
E 14 days
Ans : e
19. Term money refers to placement of funds for period not exceeding…
A 01 yr
B 02 yr
C 03 yr
D 05 yr
 Ans ;A
20. Treasury Bills are issued by whom
A RBI
B State PSUs
C GOI
D IMF
E IRDA
Ans :C
21 treasury bill is issued for 91 days to 364 days by GOI 91 days t bill is auction on
weekly basis for amount Rs………….crore.
A 100

B 200
C 500
D 1000
Ans : c read qtn carefully total three qtns aare there..
22. 364 t bill is auction on fourthnightly basis for amt of RS ……….crore by GOI
A 500
B 1000
C 1500
D 2000
Ans : c
23. A commercial paper carried credit risk , issued for period of 14 days to 01 yr for
minimum amt of 05 lakh and face value of Rs 100 only by………………….and it
should be in D mat form. ( Read QTN care fully)
A RBI
B corporate
C commercial bank
D central govt
Ans : b
24. ECB( external commercial borrowings) indian companies can borrow ................without
approval of RBI
a. usd 500 mn up to minimum period of 5 yrs
b. usd 20 mn upto minimum period of 3 yrs
c. both a and b are correct
d. without RBI approval they cannot borrow at all
ans C
.page no 333 bfm
25individuals are now permitted to remit overseas freely without rbi approval upto
a. 100000 usd/year
b. 200000 usd/yr
c. 300000 usd/yr
d. not possible without rbi approval
 ans : b page 334 b pe
26. certificate of deposit is a negotiable debt instrument has maturity period of 07 to 1 yr
and minimum amt is Rs 01 lakh basically issued by……….
A RBI
B Banks
C Treasury
D Corporate
E None

Ans : b
27 the difference between buying and selling rate is called
a) spread
b) profit
c) a only
d) a& b
Ans:d
28 placement of funds for overnight is called
a) notice money
b) call money
c) term money
d) all the above
Ans : b
29. Treasury discount bills of exchange, of short term nature with a tenure of
A 1 to 3 month
B 3 to 6 m
C 6 to 9 m
D 9 to 12 m
Ans : b
30. govt security are issued by..
A central finance ministry
B ministry of commerce
C central govt
D RBI
Ans : d
31. The basis point value is associated with
A risk pricing
B risk measurement
C risk mitigation
D risk control
 Ans: b
32. Deventures are governed by
A Law of contract
B Company Law
C Negotiable instrument
D non of these
Ans: b
33. all exposure limit are reviewed ….
A once in a qtr
B once in half yr
C once in a yr
D no limit
Ans: c

34 interest cost of funds locked in a trading position is called
A swap
B pre-settlement
C carry
D speculation
E options
Ans:c
35. A situation where the depoiter of abank lose confidence in the bank and withdraw therir
balances immediately, is called
A liquidation of the bank
B falilue of bank
C run on the bank
D out of the money
Ans: c
36. The capacity of abank oa business organization to absorb losses on account of market
risk.
 A risk absorption capacity
B risk aversion capacity
C risk taking capacity
D risk appetite
Ans:d

Very IMPORTANT QUESTIONS to know

Very IMPORTANT QUESTIONS to know

 1.Lien Vs Negative Lien Lien is the right of a creditor in possession of goods, securities or any other assets belonging to the debtor to retain them until the debt is repaid, provided that there is no contract express or implied, to the contrary. Negative Lien is an undertaking by the borrower not to create any charge on his assets without the consent of the bank. It does not confer any right on the bank.

2. Pledge Vs Hypothecation Under pledge the ownership remains with the borrower but the possession passes on to the bank whereas in case of hypothecation, both ownership and possession remains with the borrower. While under pledge the bank can sell the asset without going to court, under hypothecation it can be done only through the legal process.

 3.Supplier Finance Vs Dealer Finance Extending credit facility to the suppliers of the Corporate for the supplies made is called as ‘Supplier Finance’ where as credit facility provided to the dealers for the goods delivered by the corporate is known as ‘Dealer Finance’.

4. What is EPC and BOT? Government entrusts the projects to the private players where they undertake Engineering, Procurement and Construction (EPC) activities. They have no role in the ownership of the roads, toll collection and maintenance of the roads. These activities will be taken care by the government. Under BOT (Build, Operate and Transfer) model, the cost of the project is to be borne by the private players and in turn they collect toll revenue or annuity fee from the government at agreed terms.

5. Tell about Infrastructure Investment Trusts (InvITs).It is an instrument available to infrastructure companies to raise funds from High Networth Investors to unlock capital from older assets, de-leverage balance sheets and receive upfront cash to deploy in upcoming projects. The minimum investment in the primary offer (IPO) and secondary market is `10 lakh `5 lakh respectively. Recently SEBI relaxed the norms to allow InvITs to raise funds by issuing debt securities which include Debentures and Bonds but excludes bonds issued by Government,Security Receipts and Securitized Debt instruments.

6. How Financial Guarantee differs from Performance Guarantee? Financial Guarantee is a direct credit substitute wherein a bank irrevocably undertakes to guarantee the payment of a contractual financial obligation where as Performance Guarantee is essentially deal with transactions related to contingencies that involve an irrevocable undertaking to pay to third party in the event the counterparty fails to fulfill or perform a contractual obligation. Financial guarantee essentially carry credit risk where as in case of performance guarantee the risk of loss depends on the event (internal / external factors) need not necessarily be related to the creditworthiness of the counterparty involved.

7. State the salient features of Revolving Credit. It is a letter of credit where the amount is revived or reinstated without requiring specific amendment to the credit. Once drawing is made, the credit reverts to its original amount for re-use by beneficiary. There are two types of revolving credit viz., credit gets reinstated immediately after a drawing is made and credit reverts to original amount only after it is confirmed by the Issuing Bank.

 8. What is Joint Lending Arrangement (JLA)? The scheme shall be applicable to all lending arrangements, with a single borrower with aggregate credit limits (both fund & non-fund) of `150 crore and above involving more than one bank. Borrowers having multiple banking arrangements below `150 crore may also be encouraged to come under JLA, so that the wholesome view of the assessment of credit requirement as well as the entire operations of the customers can be taken by banks. The Bank from which the borrower has sought the maximum credit will be the designated Lead Bank for the JLA. The Lead bank will be responsible for preparation of appraisal note, its circulation, and arrangements for convening meetings, documentation, etc.

9. Briefly state about Consortium of Banks. All banks come together and collaborate with each other in assessing the credit requirements of the borrower duly sharing the credit facilities as well as sharing securities with “Pari Pasu” charge. Normally, the bank which has larger exposure act as leader who conduct meetings, assess the credit requirements of the borrower and share all the information with member banks from time to time. The minimum threshold limit for participating bank now stipulated is 10% of the total exposure. The lead bank will review financial covenants of the borrower in quarterly consortium meetings on the basis of progress report submitted by the borrower.

10. State the important features of new “Credit Delivery System”? Borrowers having aggregate fund based working capital limit of `150 crore and above from the banking system, a minimum level of ‘loan component’ of 60 percent in the form of Working Capital Demand Loan (WCDL) with effective from 1st April 2019. Drawings in excess of the minimum ‘loan component’ threshold may be allowed in the form of cash credit facility. The undrawn portion of cash credit / overdraft limits sanctioned shall attract a credit conversion factor of 20 percent. These measures are aimed to enhance credit discipline among large borrowers and to prevent perpetual rollovers, which is the need of the hour.

11. Norms for takeover of loan accounts from other banks. The take over of accounts should be as per approved Board policy of the bank and the account should be a Standard Asset with Positive Networth & Profit record. P&C Report is mandatory preferably before sanction, if not, at least before disbursement. Banks should ensure that TOL/TNW shall not exceed 4:1 and the collateral coverage should be minimum 125% for working capital limits and 100% for term loans and the external rating shall not be more than 6 months old. Enhancement of limits beyond 50% not allowed

12.Tell about Multiple Banking?
Under Multiple Banking, borrower avails credit facilities across banks. Each bank undertakes their own assessment of risk, decide the mix of credit facilities and stipulate their own terms and conditions. Each of the banks takes the security and gets the charges registered with the ROC in theirfavour.

13. What are the approved Credit Information Reports (CIR) that banks will accept for the purpose of sanction of credit limits? CIR received from Credit Information Bureau India Limited (CIBIL) and EQUIFAX companies are treated as valid scores. The minimum acceptable scores for CIBIL and EQUIFAX are 700 and 730 respectively

Financial Ratio Analysis ..Very useful to get knowledge

Financial Ratio Analysis

In credit proposals, Ratio analysis plays a significant role in analysing the financial health of units. Structuring the ratios in a proper manner not only results in gauging the performance of the unit, but also in analysing its exact financial needs.

let us understand various Profitability ratios along with rationales.
1. Operating Profit / Net Sales (%):
This ratio gives clue about the profitability of the unit from its core operations.
Rationale: It is to understand whether profitability reported by the unit is on account of its core operations or from non operating income.
2. Profit Before Tax (PBT) / Net Sales (%):
Indicates Profitability levels. It gives an indication regarding percentage of profit reported by the unit out of total income in a particular financial year
Formula for PBT: Net Sales (-) Operating expenses (-) Interest (+) Non operating income (-) Non operating expenditure.
For example, if PBT is Rs 10/- out of net sales of Rs 100/-, then the unit has a profitability of 10% in its business.
Rationale: PBT is arrived after considering Non operating income and Non operating expenditure. It is to understand whether profitability reported by the unit is on account of its core operations or from non core operations.
3. Operating cost to sales:
Operating cost is sum total of expenditure incurred from the stage of raw materials purchased to selling, General and administration expenses.
Rationale: This ratio is important in understanding the total amount of cost involved out of per unit sale. For example, an Operating cost to sales of 0.75 indicates, that the unit is incurring an amount of Rs 75/- in the form of operating costs while generating a revenue of Rs 100/-
4. Long Term Loans /Earning Before Interest, Depreciation, Taxation and Amortization (EBIDTA):
It indicates the comfortable level of EBIDTA to take care of term loan repayment obligations.
Rationale:Lower the ratio, greater is the comfort. If the ratio is low, it indicates that unit is not excessively indebted and is able to fulfil its debt obligations. Conversely, if the ratio is high, it indicates that company is heavily burdened with debt.
5. Interest Coverage Ratio (ICR) = Profit before Depreciation, Interest and Tax (PBDIT) / Interest):
It determines the cushion available in the hands of the unit out of surplus generated from its operations to pay interest on its outstanding debt. This ratio explains the sufficiency of available funds (PBDIT) in the hands of the unit to take care of interest obligations.
Rationale: This signifies that the unit has to generate sufficient income to meet its interest obligations, even when the business prospects are adverse.
A lower ICR indicates that less operating profits are available to meet interest payments and that the unit is more vulnerable to volatile interest rates. Therefore, a higher interest coverage ratio is desirable which indicates stronger financial health.
6. Return on Equity (ROE) %:
ROE is calculated as a ratio of net profit to the equity. It indicates what is the percentage of return, the equity share holders are deriving from their investment made in the business.
Rationale: ROE represents the capacity of the unit to serve its equity holders. Higher the level, higher is the return derived by share holders.
7. Debt Service Coverage Ratio (DSCR):
‘Debt’ means maturing term obligation within a year viz., instalment repayable during a year under all term loans/deferred payment guarantees and ‘service’ means cash accruals consisting of net profit plus depreciation and non-cash expenses written off.
This ratio has to be calculated for the entire tenor of term loan. While calculating DSCR, existing term loan and its repayment should also be considered along with proposed term loan. Apart from this, any other term loan sanctioned by any other financial institution should also be considered.
Gross DSCR = [PAT + Depreciation and other non cash expenses** + Interest on term loan] / [Annual Principal instalments + Interest on term loan]
Net DSCR = [PAT + Depreciation and other non cash expenses**] / [Annual Principal instalments]
** Amortization, unrealized gains, unrealized losses etc.
Average Gross DSCR: It is calculated by dividing sum total of cash + Interest on term loan for the entire period of term loan with sum total of Annual Principal instalments + Interest on term loan for the entire period of term loan.
Rationale: DSCR is most important, as it indicates the ability of an enterprise to meet the liabilities (by way of instalments of Term Loans and Interest) out of cash accruals generated and forms the basis to fix repayment schedule in respect of the Term Loans sanctioned

MANAGING STRESS .Very useful Article

MANAGING STRESS ::

Adult life seems to be full of fun and unlimited possibilities. You can go wherever you want, do whatever you want, and never think about consequences. But when you grow up, you understand that there is nothing fun about being an adult. You have thousands of responsibilities, hundreds of daily tasks to accomplish, and the consequences are the only thing you can think about. You may live in the state of permanent stress. You have no right for a mistake. You have no time for having rest. You can’t tell someone that you cannot handle your problems. You need to be strong, you need to work hard, and you need to find a solution to every problem that appears.

Stress in Modern Life

With every year, the level of stress increases. Unfortunately, no one is surprised today when a 30-years old person has a stroke. The situation becomes worse: even children suffer from stress. They have sleep disorders, problems with concentration and nutrition, and they do not even understand that the reason for this lies in the habits of their parents and surrounding society. It seems that for the next generation stress will be the next cancer.

Still, today we can handle the stress. It requires time, attention, and effort, but the results – strong mental and physical health – are totally worth it. There are several approaches to stress management. These approaches can be divided into two large groups: something that you can do to decrease stress level at the current moment and methods that you need to introduce into your life and make them your habits.

Change Your Life to Get Rid of Stress

Of course, you cannot eliminate stress from your life for good. For our bodies, a stressful situation is everything that makes us feel uncomfortable. Your stress management will be more effective if you build stamina and make your

body and mind strong. Thus, you can prevent the negative effects of stress.

Everyone will experience stress in different aspects of their lives; it may be at work, with their family, or with their health. However, whatever might be the cause of your stressful day, it creates the same effect on your body, mood, and even on other people.

Life is full of hassles, demands, and if people don’t meet expectations or deadlines, the tendency is that our mind will be exposed to chaotic thinking and tiredness. This is how stress come out that can generally invade and ruin the enjoyment of your life. For many people, stress is a normal part of life that usually appears in everyday situations. Stress isn’t always bad; however, dealing with stress is usually not good. Mild stress can help you deal with pressure and motivate you to do your best and finish your work before the deadline.

Stress is a normal physical response to events that make you feel threatened, upset, and anxious. It may seem that there’s nothing you can do about stress. However, difficulties in dealing with this emotion may result in risk and danger to your health, physically and mentally.

Anyone experiencing stressful situation may be at risk of losing control of their emotions, which sometimes could ruin your ability to make decisions rationally. How to know if the anxiety is too much in dealing with your stress? How important is it to gain a deeper understanding about stress and what are the necessary things to do when dealing with such emotion? Feelings such as worry, and anxiety are just some of the common results of stress. Being stressed is sometimes healthy in order for a person to be alert and act. However, there are certain points in human life, where people cannot manage dealing with their stress.

Stress management effectively starts with identifying the sources of stress in your life. At first, it may not be easy as you may tend to overlook your own stressful feelings and behaviour. However, providing a solution to a problem always starts with identifying the problem or cause. The best

remedy for stress is self-examination and taking significant actions that can definitely help you lessen your worries and fears. Examples include taking a break for a few minutes to practice some deep-breathing exercises, relaxation, and entertaining yourself like going for a walk or going shopping. These are just a few examples that can usually help people ease their stressful day. In addition, if you cannot remove the stress, remove yourself. If you are not getting along with your company, it is important to slip away and find a new sanctuary to work in.

There are several negative effects of stress on your health such as an upset stomach, recurring colds, headaches and insomnia. If you are having difficulty dealing with stress, it would also be best to seek professional help from a doctor or therapist.

TIPS FOR REDUCING THE STRESS

Below are a few tips on what we can do to reduce stress in our life.

1. Healthy Nutrition

We are what we eat. If your daily meals consist of fries and other fast food, you have severe problems with nutrition. A person needs to consume not only enough calories (fast food has too many of them, causing obesity) but also enough elements and vitamins. When you consume good food, your body receives enough energy to be productive all day long and build the important connections between your blood, cells, and the nervous system.

2. Regular sports

If you suffer from stress regularly, you need to change your daily activities. The best way to get rid of stress (and prevent it) is regular sports classes. It does not matter what type of class you choose, swimming, gym or yoga, you just need to make your body move. While moving, our endocrine system starts to produce hormones helping to lower the impact of stress. Besides, if you feel stressed right here and now, you

can also use sports as the way to manage stress.

3. Meditation

If you are looking for simple ways to fight stress, then regulating your breathing can help. Our breath is a natural and most important function of life and carries vital life energy. It is a known fact that if we stop breathing for long enough, then we die. Despite this fact, most of us take our breathing for granted and rarely stop to think about it. Find out how breathing properly can help to relieve symptoms of stress and calm and relax your mind.

When we are stressed, our body responds in preparation for "fight or flight" and we suffer various symptoms such as sweating, increased pulse rate, racing heart, and fast, shallow breathing. In earlier times this was necessary for our survival when hunting or protecting ourselves. However today it is usually only our perception of danger or negative thoughts that produce this reaction, so the body has few ways to deal with the effects.

Regular attacks of stress and anxiety start to turn our fast, shallow breathing into a habit. They may decrease our ability to breathe properly and could leave us with breathing difficulties such as asthma. Often in today's society, we do little aerobic exercise and therefore we rarely breathe deeply. Our breathing simply becomes shallower than it needs to be as a matter of habit.

Just as stress and other states of mind affect our breathing, the way that we breathe affects our state of mind. When we breathe, we are taking in oxygen through the lungs to the brain and the cells in the body. Shallow breathing can affect the amount of oxygen circulating in the body. This makes us feel sluggish. The way we breathe also affects the amount of energy in our bodies. When our breathing is irregular and erratic, we are likely to feel lacking in energy.

Of course, it is not just the body that is affected by the way that we breathe but the mind also. For centuries disciplines such as yoga and meditation have involved using the breath as part of their

techniques. Use of the breath is an important part of performing yoga postures. Breathing meditation is common to calm the mind as part of preparative practices for meditation. Breathing meditation consists of watching the breath as we breathe in and out whilst trying to ignore all other distractions to the best of our ability. Concentrating on the breath has long been known to quiet and calm the mind.

In the same way as used in meditation, breathing exercises can be used to fight stress and quiet the mind and body. These are great because they are simple and free, and you can do them anywhere. Simply concentrating on our breathing whilst drawing deeper, slower breaths can help us to relieve stress and relax our minds. Breathe deeply through your nose and feel your diaphragm move. Watch the breath coming in and going out. Try to ignore all other distractions.

When you breathe, allow yourself to enjoy the experience of being a living being. Mostly we forget to do this and move through life very unconsciously. When we can quiet our minds, we can find peace and receive insights and access to our subconscious. Only when we become conscious of how we breathe, can we start to correct this.

So, to fight stress and find more energy, try watching your breath to make sure you are breathing efficiently. Get into the habit of taking deeper breaths. Improve your breathing through breathing exercises and regular aerobic exercise. Breathing properly will help you to cope with stress and improve your well-being.

Ability to calm down your mind and keep your emotions under control is precious. Regular meditations help to find out methods to remain calm and preserve a clear mind in different life situations. Meditation is the habit that will change your life even more dramatically than quitting smoking or drinking alcohol. First of all, it will help you release your hidden potential. You will be able to find answers to the questions that have been bothering you for a long time. You will be able to understand what exactly you want. You will learn how to listen to yourself and how to use this knowledge in your further life.

4. Sleep at Night

Night sleep is a key element of your strategy to prevent negative effects of the stress. At night, our bodies produce the most important hormones that help us beat stress. If you sleep in the daytime, your body cannot sufficiently perform its functions. Besides, you need to sleep at least 6 hours to give yourself time to have a rest and relax.

5. Positive Thinking

Stress ruins our mental health. To prevent that, you need to teach your mind to be strong and believe in the best outcomes. Positive thinking is an easy and effective way to enhance your mental health and make it ready to beat any complication or challenge. If you feel that you can no longer take your emotions under control, give yourself a break. Try to get rid of all negative thoughts and start thinking about positive moments. Imagine that you are sitting on the shore of the ocean, observing the waves and listening to nature. Or remember your childhood when mom’s smile made you the happiest person in the world.

6. Be Pro-Active

Lazy people suffer from stress more frequently than those who have an active life. If you have something to do, you do not have time to make up problems and think about them. Each time you notice that stress level is rising, start doing something that requires effort and concentration from you. For some people, the best solution for stress is to work with their hands. Other people prefer to delve into studying or investigation. Try different methods to understand what works perfectly for you.

Another approach that will help you beat the stress is to learn something new. However, you need to be careful with this approach. First of all, the theme should be interesting, and

secondly, you should not get irritated when you cannot cope with some new tasks

7. Do What You Like

It has been noticed that students who admire writing do not suffer from writing an essay. They do it easily in comparison to the students who do not love what they do. If you notice that everything in your life creates additional stress, change what you do. If you admire writing but work as an accountant (and you actually hate your job), quit it and give a try to writing different types of thesis statements for a magazine. If you cannot quit the job, introduce your hobbies to your life and make them more important than the things you do not like at all. Of course, it is difficult to change your approach to life in a couple of days. But you need to work on it to get rid of the stress and make your life more comfortable.

Stress should not be your friend. It should not guide you through your life and spoil its best moments. You need to take your life under control and make it better. Develop a habit to fight against stress and find the ways to eliminate it from your life. These 7 tactics will help you choose the right way to beat this problem and enhance the quality of your life.

AFB - Recollected questions posted by our members 17.11.2019

AFB - Recollected questions posted by our members 17.11.2019
1.who can open a current account
2.concept of conservatism
3.straight line method book value problem
4.kyc low risk medium and high risk
5.Gold loan ltv ratio
6.npv problems
7.a indian bank branch in foreign country quotes fe in 1US$=1rupee.
Whether it is a direct quote or indirect quote.
8.collection period denominator
9.collection period problem
10.matching concept
11.calculate capital.assets and liabilities given
12.adjustment entry
13.purchases account
14.coupon rate
15.bank reconciliation statement is prepared by whom a.auditor b.bank etc..
16.revenue receipt
17.promissory note is prepared by whom
18.publication of balance sheet
19.which is not a accounting ratio
Solvency,profitability, activity,etc
20.stock turnover ratio
21.types of company on ownership
22.journal
23.double entry system
24.functions of back office
25.operational manual is available in which of the following
Social media,banks website,internal portal
26.banking is defined as per which act
BRA,Rbi act..
27.small accounts.aggregate credits in a year
28.example of a debit voucher
29.example of credit voucher
30.inoperative account