Q.
What is the functions of World Bank?World Bank performs the following functions:1. Granting reconstruction loans to war
devastated countries.
2. Granting developmental loans to war devastated countries
3. Providing loans to governments for agriculture, irrigation, power, transport, water supply, educations, health, etc.
4. Providing loans to private concerns for specified projects.
5. Promoting foreign investment by guaranteeing loans provided by other organizations.
6. Providing technical, economic and monetary advice to member countries for specific projects.
7. Encouraging industrial development of underdeveloped countries by promoting economic reforms.
Q. Discuss the duty and responsibility of Advising Bank/Corresponding BankCorrespondent bank (usually in the exporter’s country) of an issuing bank (usually in the Importer’s country) that receives a letter of credit (L/C) from the issuing bank for authenticating it and informing (advising) the exporter (the L/C’s beneficiary) that a L/C has been opened by the importer in the exporter’s favor.The advising bank usually also takes on other roles in the transaction, such as1. C the letter of credit (playing the role of the confirming bank)
2. Accepting a bill of exchange by endorsing it (becoming the accepting bank) and/or,
3. Paying the exporter on presentation of documents (becoming the paying bank or negotiating bank)
Q. Discuss the duty and responsibility of opening Bank/Issuing Bank under confirmed L/C1. Duty owned to the applicant;i. The duty to issue an efficacies credit; the buyer has approach to opening of a documentary credit in favor of the seller, on the terms set out in the contract of sale that a contractual relationship comes into existence between the buyer and the bank.ii) The duty to receive and examine the required documents and make payment in
accordance with the credits stipulation.
iii) The fraud exception: The fraud exception under a tendered document either
contains statements known by the beneficiary to be false or contains a forged signature or a fraudulent alteration.
2. Duty owned to the beneficiary:
The obligation is to receive, examine the required documents and make payment.
All that the issuing bank do should be consistent with the rule, actually that is the
duty is owned to the beneficiary. These are:
i. The doctrine of strict compliance and standard for examining the documents
ii. Duty to raise all discrepancy in a reasonable time
Q. Describe the various methods available to overseas Bangladesh Nationals for transfer of funds to the home country. What are the problems normally encountered by them for such transfer?There are an ever larger number of options for sending money oversees or processing international money transfers. Below are some of the methods available to you:1. Foreign Exchange Providers: When transferring much larger amounts of money, for purchasing a property or starting up a business for example, or sending regular payments aboard, it may often be cheaper to use a reputable currency broker
2. Banks: Most of the UK banks offer money transfers, so long as you hold an account with them and also the recipient.
3. Money Transfer Operators: It is are companies that only offer money transfer services, usually through agents, and only send money between countries.
4. Online money transfer service/internet money transfer: For a small percentage, you can send money via the internet using secure online payment provide.
5. Prepaid money cards: Load up a prepaid card and spend aboard card and spend aboard just as you would a credit card or debit card.
The problems normally encountered by them for such transfer are:1. Poor infrastructure in rural and semi-urban economy
2. Inadequate reach of private commercial banks within the country
3. Massive information asymmetry in the market.
4. Active Hundi market
5. Inefficiency of financial institutions
6. Poorly regulated exchange house
7. Low literacy rate in the country
8. Uneven competition among financial institute
9. Lack of investment in IT backbone development for market efficiency
10. Absence of a strong central payment gateway for Straight Though Processing (STP) of payment services.
Problems created by fund transfer are as follows:
1. Brain drain: Bran drain is the most signify negative side of enjoying fund transferring for any developing country like Bangladesh. Though we get an important portion of remittance from our educated skilled person after all it is not favorable because educated people are very important for our economy.
2. Income inequality: In a specific community, relative income inequality may be found where there are both emigrants families and non-emigrants families due to the variation in their income levels.
3. Regional disparities: In the same line of above reasoning regional disparities may be found among emigrants intensive regions or districts like Sylhet, Chittagong, Camilla, Noakhali, Dhaka etc. And less emigrants intensive regions or districts of the country.
4. Increased demand for imported luxury goods: There is a tendency of remittance earning families to purchase foreign luxury goods which creates unfavorable condition in the balance of payments.
5. Misuse of remittance: Sometimes the young people of remittance earning family easily get huge money on their hand and misuse that money creating various types of informal and illegal activates.
6. Social insecurity: Sometimes remittance earning families feel insecurity from hijackers. They are sometimes compelled to pay to the bad section of the society.
Q. What are the measures you would suggest to improve the climate for foreign investment in Bangladesh.The measures that would be suggested to improve the environment for foreign investment are as follows:1. Capital Controls: Capital controls encourage black markets for foreign currency. So, it should be an effective controls system for improvement of foreign investments.
2. Allows a limited capital flight: Another strategy that governments can use to limit capital flight is to make holding domestic currency more attractive by keeping it undervalued relative to other currencies or by keeping local interest rates high.
3. Tackle tax havens and address tax evasion: Tax evasion can be reduced by relying more on consumption or sales taxes and less on taxes on interest and profits.
4. Arrangements among control bodies: Agreements among countries and central banks can add to the credibility of these situations.
5. Reforms in international monitory system: It ensures stability of exchange rates, and must build upon the principles of cooperation and solidarity.
6. Private capital: One encouraging sign is that private capital has begun to return to countries for which future prospects have brightened.
7. Reform accounting standards: It must be improved in order to prevent excessive risk taking as well as tax avoidance and tax evasion practices.
Analyze the favorable and adverse impacts of foreign investment on Bangladesh economy.
Favorable impacts of foreign investment on Bangladesh economy:1) Overcoming domestic recourse constraint: It inflows are believed to be more stable and easier to service than other source of foreign private capital such as commercial debts or portfolio investment.
2) Raising the productivity of labor and capital: FDI raise the productivity of labor, and employment quality. Economies of scope and scale and managerial efficiency can raise the productivity and returns of all production input.
3) Generating employment: Increased employment, like investment, will have a multiplier effect on the economy and stimulate a dynamic growth cycle.
4) Easing the balance of payments constrains: It constitutes an inflow on the capital account without devaluing the currency.
5) Raising exports: It is in fact one reason why developing country govt. tries to attract FDI through the creation of export processing zones. (EPZs)
6) Access to markets: It can help host countries gain easy access to the lucrative markets of the rich countries.
8) Benefits to environment: It has better access to and knowledge of environmentally sound technologies and is expected to bring such technologies to the host country.
9) Benefits to consumers: Consumers are benefited from increased FDI inflows in the form of lower prices and improved product quality.
10) FDI may also contribute increased revenue to the government.
Adverse impacts of foreign investment on Bangladesh economy:1. Impact on domestic savings: The FDI may also have a negative effect on domestic savings, as it gives room for an increase in consultation in the recipient country.
2. Recapitalization effect: FDI brings in capital, but also leads to a stream of return flow of profit, other investment incomes and accumulated interest, and repatriation of capital.
3. Effects on balance of payments: FDI have a positive effect on balance of payments, there must be a strong enough positive trade effect to offset the negative recapitalization effect.
4. Denationalization effect: The ownership of firms is transferred from domestic to foreign hands and the foreign share of the nation’s wealth stock increases relative to local share.
5. Impact on development: The impact of FDI on development also depends upon the type of FDI, i.e., whether it is in the form of Greenfield investment or merger and acquisition.
6. Instability: Contrary to the conventional wisdom that FDI is a stable form of longer-term foreign capital inflows, an UNCTAD report shows that FDI can also be a source considerable financial instability.
Q. What are the principle incentives offerred for foreign investment in Bangladesh?1. Tax Generally 5 to 7 years. However , for power generation 3 exemption Exemption: is allowed for 15 years.2. Duty: No import duty for export oriented industry. For other industry it is 5% ad valorem.i. Double taxation can be avoided in case of foreign investors on the basis of bilateral agreements.3. Tax law: ii. Exemption of income tax up to 3 years for the expatriate employees in industries specified in the relevant schedule of Income Tax ordinance.
4. Remittance: Facilities for full repatriation of investment capital, profit and divided.
5. Exit: An investor can wind up to investment either through a decision of the AGM or EGM. Once a foreign investor completes the formalities to exit the country, he or she can repatriate the sales proceeds after securing proper authorization from the Central Bank.
6. Ownership: Foreign investor can set up ventures either wholly owned on in joint collaboration with local partner.
Q. Discuss the various types of post-shipment import finance provided by the banks.1. Loan against Trust Receipt (LTR): LTR may provide when the documents covering an import shipment are given without payment. Importer will hold the goods of their sale proceeds in trust for the bank; until the loan allowed against the trust receipt is fully paid for a period of 30 to 180 days depends on nature & amount of imported goods.
2. Payment against Documents (PAD): It is a post-import finance to settle the properly drawn import bills received by the bank in case adequate fund is not available in client’s account.
3. Loan against Imported Merchandise (LIM): It may be allowed on pledge of goods, retaining margin prescribe on their landed cost, depending of their categories. The Bank obtains a letter of undertaking and indemnity from the parties, before getting the goods cleared through LIM account. LIM may be crested in two ways:
a) LIM on importer’s request: In some cases the importer can’t able to retire the bill by his own source of fund, he may request the bank to clear the goods by creating
b) LIM Account.
c) Forced LIM: In some cases importer do not come forward to retire the goods. In these cases the bank themselves arrange to retire the goods by pledge on Go-down under banks lock & key. This type of payment is called forced LIM.
Q. What are the various methods of payments that are used to settle payments arising from international trade? Briefly describe them.
There are different methods which are adopted to make international payment, through the banking system. Following are the main methods:
1. Letter of Credit: It is a document issued by the importers bank to exporter authorizing him to draw drafts on the bank payable on demand on the specified terms and conditions.
2.Mail Transfer (MT): The payment can be also made in other country by mail transfer. Here the selling office of the bank sends written instructions by mail to the paying bank for the payment.
3.Telegraphic Transfer (TT): Telegraphic is an order by telegram to a bank to pay a specified sum of money to the specified person.
4.Foreign Bank Draft: It is an order drawn by a bank on its foreign branch or correspondent to pay specific sum of money on demand to bearer or to the person.
5.Money Order: The payment can be made to a person who is living in other country through money order.
6.Travels Cheque: It is an order drawn by a bank upon itself to pay on demand the purchaser, of the cheques. The paying bank after comparing the signatures of purchase, which he has signed at the time of the purchasing of cheques and makes the payment.
7.Travels L/C: It is used to finance foreign travel is addressed to banks in foreign countries authorizing the person to whom it is issued to draw drafts on the issuer.
8.Open Account: The goods are sold on our open account. If an exporter has full confidence on the importer he can sell the goods in another country on our open account without getting any surety for the third party.
9.Foreign Exchange Dealers: In every country foreign exchange dealers purchase and sell the foreign currency and pay in the home currency for meeting their local money demands and sell it to the persons visiting foreign countries.
10.Bill of Exchange: It is a main and most effective method of transferring payments that a written order addressed b one person to another. The creditor orders to the debtor to pay a particular amount to the payee.Q. What do you mean by forward exchange?A Forward Exchange Contract is an agreement between two financial institutions, in which they agree to buy or sell foreign currency on a fixed future date, or during a period expiring on a fixed future date, at a fixed rate of exchange. The forward exchange contracts, both buying and selling, may be either fixed or optional term contracts. The party agreeing to buy the underlying assets in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. Forward Exchange Contracts can be used to cover the exchange risk between two country’s currencies.
Q. Distinguish between Spot Rate and Forward Rate.Spot exchange rates are the rates that are applicable for purchase and sale of foreign exchange on spot delivery basis. The term spot denotes immediate happening and closing of transaction to get settled.Forward exchange rates, in contrast, are the rates that are applicable for the delivery of foreign exchange at a certain specified future date. For example, a foreign exchange contract may specify that the payment has to be settled after 3 months, or it may be a 90-day maturity contract.
Q. Distinguish between Direct and Indirect Exchange Rate.A direct quote is an exchange rate expressed in terms of the number of units of domestic currency corresponding to one unit of the foreign currency. In other words, it involves quoting in fixed units of foreign currency against variable amounts of the domestic currency.An indirect quote is the expression of an exchange rate in terms of the number of units of a foreign currency corresponding to a single unit of the domestic currency.In an indirect quote, the foreign currency is a variable amount and the domestic currency is fixed at one unit.What are the factors that contributed to depreciation of Bangladesh Taka recently? Or. Factor considered to depreciation of Bangladeshi CurrencyThe factors affecting behind the currency depreciation of Bangladeshi taka recently are mentioned below:1. High Inflation: The main cause of high inflation in Bangladesh is oil and food price hike in abroad. The high level of in the economy leads to lower the value of local currency taka.
2. Low Foreign direct investment: the growth rate of foreign direct investment is
Showing a declining trend. In the recent past, the FDI growth rate of foreign direct investment is showing a declining trend. In the recent past, the FDI growth rate is severely low.
3. Trade Deficit: For the inception of floating exchange rate regime, the export volume has increasing trends; as the huge amount of trade deficit with an increasing trend.
4. Pressure on international reserves: Growth in exports thus far has not matched rising import bills and slow remittance. Hence there has been a continuous pressure on the international reserves of the country.
5. Demand-Supply mismatch: It has been created in the foreign exchange market, leading the continuous depreciation that has been observing for the last year or so.
Q. Discuss the kind of exchange rate system that operates in respect of Bangladesh taka or, Types of Exchange rate system that operates in respect of Bangladesh.The exchange rate management is one of the central issues of macroeconomic policies of Bangladesh.There are four types of exchange rate system. These are fixed, freely floating, managed float and pegged types. Historically, Bangladesh had been maintaining various pegged exchange rate regimes or fixed exchange rate regimes.1. Fixed exchange rate system
2. Floating exchange rate system
On may 31, 2003, Bangladesh switch to floating exchange rate system by abandoning the adjustable pegged system in order ti discover the actual value of foreign currencies.There are two type of floating exchange rate system like-a. Freely floating exchange rate system
b. Managed float exchange rate system
3. Pagged exchange rate system
Bangladesh had been maintaining various pegged exchange rate regimes, such as pegged to the British pound sterling (1972-1979), pegged to a basket of major trading partners currencies with pound sterling as the intervening currency (1980-1982), Pegged to a basket of major trading partners currencies with US dollar as the intervening currency (1983-1999), and adjustable pegged system
Q. What are the various types of letter of credit? What are the partie involved in a credit?The different types of letter of Credit (LC) can be categorized as follows:-1. Confirmed LC: It issued by a foreign bank, with validity confirmed by a bank Origin. A seller who requires a confirmed by a payment by the origin bank even if the foreign buyer or the foreign bank defaults.
2. Deferred Payment Credit: It provides for payment some time after presentation of the shipping documents by seller.
3. Discrepancy LC: When documents presented do not conform to the LC, it is referred to as a ―discrepancy‖.
4. Documentary Credit: Commercial LC provides for payment by a bank to the
name beneficiary, usually the seller of merchandise, against delivery of documents specified in the credit.
5. Irrevocable LC: LC with a fixed expiration date that carries the irrevocable obligation of the issuing bank to pay the exporter when al terms and conditions of
the LC have been met.
6. Red Clause LC: It allows the exporter to receive a percentage of the face value of the LC in advance of shipment.
7. Revocable LC: It can be cancelled or altered by the Drawer’s bank.
8. Transferable LC: it allows all or a portion of the proceeds to be transferred from the original beneficiary to one or more additional beneficiaries.
9. LC, Payment by sight draft: Document, issued by a bank per instructions by a buyer of goods, authorizing the seller to draw a specified terms, usually the receipt by the bank of certain documents within a given time.
The parties involved in a letter of credit are as follows:
1. Applicant who is opener of LC, generally a buyer of goods to make invoice value of goods.
2. Issuing Bank issues a letter of credit at request of applicant that undertakes to honor a complying presentation of the beneficiary.
3. Beneficiary- It is the seller of the goods or the provider of the services in a standard commercial letter of credit transaction.
4. Advising bank that takes responsibility to communicate and arranges to send Documents to LC opening bank.
5. Confirming bank- confirms and guarantees to undertake the responsibility of payment or negotiation acceptance under the credit.
6. Negotiating Bank who negotiations documents delivered to bank by beneficiary of LC.
7. Reimbursing bank- who authored to honor the reimbursement claim of negotiation/payment/acceptance.
Q. Distinguish between LIM & LTR.LIM: This type of finance is offered to the importer to finance their need for meeting the cost including freight, insurance, and customer and excise duty payable on the imported merchandise. The lending bank mostly pledges the imported goods. The merchandise is released for the use of the importer (borrower) upon repayment of the banks finance and charges either fully or partially, on production of the Delivery Order issued by the banker in favor of the borrower.LTR: Trust Receipt (TR) is a type of short-term import loan to provide the buyer with financing to settle goods imported under Letter of Credit where title of goods is held by the bank. Under a TR arrangement, the bank retains title to the goods but allows the buyer to take possession of the goods on trust for resale before paying the bank on TR due date. TR financing is applicable to goods imported under documentary credit.
Q. Discuss the various types of credit facilities offered to importers by the banks.1. Letter of Credit: This is made in the form of commitment on behalf of the client to pay an agreed sum of money to the beneficiary of the L/C up to fulfillment of terms and conditions of the credit.
2. Loan against Trust Receipt (LTR): LTR may provide when the documents covering an import shipment are given without payment. Importer will hold the goods of their sale proceeds in trust for the bank; until the loan allowed against the Trust Receipt is fully paid.
3. Payment against Documents (PAD): It is a post-import finance to settle the properly drawn import bills received by the bank in case adequate fund is not available in clients account.
4. Loan against Imported Merchandise (LIM): The lending bank mostly pledges
the imported goods. The merchandise is released for the use of the importer (borrower) upon repayment of the banks finance and charges. LIM may be created in two ways:
a) LIM on importer’s request
b) Forced LIM
5. Bank Guarantee: The bank, on behalf of importer constituents or other customers, issues guarantees in favor of beneficiaries aboard, the guarantees may be both performance and Financial.
6. Collection of Import Bills: In this case, the importers may be financed that the bank Collect the import bills by authorized FOREX dealers outside the country and the importer will collect the bills from local bank.
Q. Briefly discuss the advantages and disadvantages of financing imports under LTR.Advantages/ Importance of LTR:A trust receipt is typically used when a bank has lent money for, say import of goods, but the goods have to be released to the importer so they can be sold or prepared for sale. But until the loan has been repaid, the goods still belong to the bank. The trust receipt evidences the banks ownership of the goods. The borrower agrees to put the goods at the disposal of the bank if required to do so, to keep them separate from other goods etc. So they can be identified. Trust receipts normally have a time limit associated with them. This is the time by which the borrower’s business cycle can be expected to have generated the money to repay the loan. It has to be said that the security provide by a trust receipt is rather poor. As its name suggest, the borrower is trusted not to violate the terms of the agreement. There are frequent cases of banks finding that they can’t actually recover their collateral.Disadvantages of LTR:One disadvantages of trust receipt financing is the requirement that a trust receipt be issued for specific goods. For example, if the security is autos in a dealer’s inventory, the trust receipts must indicate the cars by registration number. In order to validate its trust receipts, the lending institution must send someone to the borrower premises periodically to see that the auto number correctly listed because auto dealers who are in financial difficulty have been known to sell cars backing trust receipts and then use the funds obtained other operations rather than to repay the bank. Problems are compounded if the borrower has a number of different locations, especially if they are separated geographically from the lender. To offset these inconveniences, warehousing has come into wide use as a method of securing loans with inventory.
Q. Define Documentary Credit, what are the advantages of a Documentary Credit?A documentary credit – also called a letter of credit—is a conditional guarantee ofPayment in which an overseas bank takes for paying you after you goods, provided you present all the required documents (such as documents title, insurance policies, commercial invoice and regulatory documents) A documentary credit is a separate contract from an export contract. The parties to a documentary credit deal with documents, not the goods that the documents relate to. Documentary credits are a common method of payment in the international trade of goods as they offer some protection to both you buyer.The advantages of a Documentary Credit: For the exporter/ Seller:1. The seller has the obligation of buyers banks to pay for the shipped goods;
2. Reducing the production risk, if the buyer cancels or change his order
3. The opportunity to get financing in the period between the shipment of the goods and receipt of payment (especially, in case of deferred payment).
4. The seller is able to calculate the payment date to a complaint about the goods
5. The buyer will not be able to refuse to pay due to a complaint about the
goodsFor the Importer/Buyer:1. The bank will pay the seller for the goods, on condition that the latter presents to the bank the determined documents in line with the terms of the letter of credit;
2. The buyer can control the time period for shipping of the goods;
3. By a letter of credit , the buyer demonstrates his solvency;
4. In the case if issuing a letter of credit to the buyer.
5. Providing a letter of credit allows the buyer to avoid or reduce pre-payment.
Analyze the importance/impact of remittance in the Bangladesh economy
The ways in which remittance alleviate the poverty of individuals are , in the first round of effects, direct and fairly obvious. They include the following.1. Survivalist income supplementation. For many recipients, remittances provide food security, shelter, clothing and other basic needs.
2. Consumption smoothing Many recipients of remittance, especially inrural areas, has highly variable incomes. Remittance allows better matching of incomes and spending, the misalignment of which otherwise threatens survival and/or the taking on of debt.
3. Education. In many developing countries, education is expensive at all levels, whatever the formal commitments of the State. Remittance can allow for the payment of school fees and can provide the wherewithal for children to attend school rather than working for family survival.
4. Housing. The use of remittances for the construction, upgrading and repair of houses is prominent in many widely different circumstances.
5. Health. Remittances can be employed to access preventive and ameliorative health care. As with education, affordable health care is often unavailable in many remittance-recipient countries.
6. Debt. Being in thrall to moneylenders is an all-too common experience for many in the developing world. Remittance provide for the repayment of debts and for the means to avoid the taking on of debt by providing alternative income and asset streams.
7. Social spending. Day-to-day needs include various social expenditures that are culturally unavoidable. Remittances can be employed to meet marriage expenses and religious and less happily but even more unavoidable, funeral and related costs.
8. Consumer goods. Remittances allow for the purchase of consumer goods, from the most humble and labor saving, to those that entertain and make for a richer life.
Q. What is meant by balance of payments?A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports and imports, including all financial exporters and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa. Balance of payments may be used as an indicator of economic and political stability.
Q. Distinguish between Fixed Exchange Rates and Floating Exchange Rate.A fixed exchange rate the government sets and maintains as the official exchange rate. A set price will be determined against a major world currency. In Order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged.A floating exchange rate is determined by the private market through supply and demand. It is often termed ―self-correcting‖ as any differences in supply and demand will automatically be corrected in the market. As see, if demand for a currency is low, its value will decrease, thus making imported goods more expensive and stimulating demand for local goods and service.
Q. What are the factors responsible for appreciation or depreciation of a currency?Or,Factors that effected to appreciation or depreciation of a currencyRelative Product Prices: If a country’s goods are relatively cheap, foreigners willWant to buy those goods, In order to buy those goods, they will need to buy the nation’s currency.Supply and Demand: The principles of supply and demand apply to the appreciation and depreciation of currency values. If a country injects new currency into its economy, it increases the money supply.Inflation and Deflation: Inflation occurs when the general prices of goods and services that are causes of the value of the currency to depreciate, reducing purchasing power. Simultaneously, deflation acts reversely.Monetary Policy: A country with easy monetary policy will be increasing the Supply of their currency, which will cause the currency to depreciate. This country with restrictive monetary policy will be decreasing the supply and the currency should appreciate.Economic Outlook: The negative impacts on major economic indicators like retail sales, GDP and a high/rising unemployment rate can also depreciate currency value. If the economy is in string growth period, the currency value will appreciates.Trade Deficits: When the trade deficit of a country increases, the value of the domestic currency depreciates. Simultaneously, when it decreases, the value of its domestic currency appreciates.
Major Factor that Affect the Foreign Exchange Market in BangladeshSome of the major factors that affect the foreign exchange market in Bangladesh are:i) Exchange rates
ii) Remittances
iii) Foreign Exchange Reserve
2. Granting developmental loans to war devastated countries
3. Providing loans to governments for agriculture, irrigation, power, transport, water supply, educations, health, etc.
4. Providing loans to private concerns for specified projects.
5. Promoting foreign investment by guaranteeing loans provided by other organizations.
6. Providing technical, economic and monetary advice to member countries for specific projects.
7. Encouraging industrial development of underdeveloped countries by promoting economic reforms.
Q. Discuss the duty and responsibility of Advising Bank/Corresponding BankCorrespondent bank (usually in the exporter’s country) of an issuing bank (usually in the Importer’s country) that receives a letter of credit (L/C) from the issuing bank for authenticating it and informing (advising) the exporter (the L/C’s beneficiary) that a L/C has been opened by the importer in the exporter’s favor.The advising bank usually also takes on other roles in the transaction, such as1. C the letter of credit (playing the role of the confirming bank)
2. Accepting a bill of exchange by endorsing it (becoming the accepting bank) and/or,
3. Paying the exporter on presentation of documents (becoming the paying bank or negotiating bank)
Q. Discuss the duty and responsibility of opening Bank/Issuing Bank under confirmed L/C1. Duty owned to the applicant;i. The duty to issue an efficacies credit; the buyer has approach to opening of a documentary credit in favor of the seller, on the terms set out in the contract of sale that a contractual relationship comes into existence between the buyer and the bank.ii) The duty to receive and examine the required documents and make payment in
accordance with the credits stipulation.
iii) The fraud exception: The fraud exception under a tendered document either
contains statements known by the beneficiary to be false or contains a forged signature or a fraudulent alteration.
2. Duty owned to the beneficiary:
The obligation is to receive, examine the required documents and make payment.
All that the issuing bank do should be consistent with the rule, actually that is the
duty is owned to the beneficiary. These are:
i. The doctrine of strict compliance and standard for examining the documents
ii. Duty to raise all discrepancy in a reasonable time
Q. Describe the various methods available to overseas Bangladesh Nationals for transfer of funds to the home country. What are the problems normally encountered by them for such transfer?There are an ever larger number of options for sending money oversees or processing international money transfers. Below are some of the methods available to you:1. Foreign Exchange Providers: When transferring much larger amounts of money, for purchasing a property or starting up a business for example, or sending regular payments aboard, it may often be cheaper to use a reputable currency broker
2. Banks: Most of the UK banks offer money transfers, so long as you hold an account with them and also the recipient.
3. Money Transfer Operators: It is are companies that only offer money transfer services, usually through agents, and only send money between countries.
4. Online money transfer service/internet money transfer: For a small percentage, you can send money via the internet using secure online payment provide.
5. Prepaid money cards: Load up a prepaid card and spend aboard card and spend aboard just as you would a credit card or debit card.
The problems normally encountered by them for such transfer are:1. Poor infrastructure in rural and semi-urban economy
2. Inadequate reach of private commercial banks within the country
3. Massive information asymmetry in the market.
4. Active Hundi market
5. Inefficiency of financial institutions
6. Poorly regulated exchange house
7. Low literacy rate in the country
8. Uneven competition among financial institute
9. Lack of investment in IT backbone development for market efficiency
10. Absence of a strong central payment gateway for Straight Though Processing (STP) of payment services.
Problems created by fund transfer are as follows:
1. Brain drain: Bran drain is the most signify negative side of enjoying fund transferring for any developing country like Bangladesh. Though we get an important portion of remittance from our educated skilled person after all it is not favorable because educated people are very important for our economy.
2. Income inequality: In a specific community, relative income inequality may be found where there are both emigrants families and non-emigrants families due to the variation in their income levels.
3. Regional disparities: In the same line of above reasoning regional disparities may be found among emigrants intensive regions or districts like Sylhet, Chittagong, Camilla, Noakhali, Dhaka etc. And less emigrants intensive regions or districts of the country.
4. Increased demand for imported luxury goods: There is a tendency of remittance earning families to purchase foreign luxury goods which creates unfavorable condition in the balance of payments.
5. Misuse of remittance: Sometimes the young people of remittance earning family easily get huge money on their hand and misuse that money creating various types of informal and illegal activates.
6. Social insecurity: Sometimes remittance earning families feel insecurity from hijackers. They are sometimes compelled to pay to the bad section of the society.
Q. What are the measures you would suggest to improve the climate for foreign investment in Bangladesh.The measures that would be suggested to improve the environment for foreign investment are as follows:1. Capital Controls: Capital controls encourage black markets for foreign currency. So, it should be an effective controls system for improvement of foreign investments.
2. Allows a limited capital flight: Another strategy that governments can use to limit capital flight is to make holding domestic currency more attractive by keeping it undervalued relative to other currencies or by keeping local interest rates high.
3. Tackle tax havens and address tax evasion: Tax evasion can be reduced by relying more on consumption or sales taxes and less on taxes on interest and profits.
4. Arrangements among control bodies: Agreements among countries and central banks can add to the credibility of these situations.
5. Reforms in international monitory system: It ensures stability of exchange rates, and must build upon the principles of cooperation and solidarity.
6. Private capital: One encouraging sign is that private capital has begun to return to countries for which future prospects have brightened.
7. Reform accounting standards: It must be improved in order to prevent excessive risk taking as well as tax avoidance and tax evasion practices.
Analyze the favorable and adverse impacts of foreign investment on Bangladesh economy.
Favorable impacts of foreign investment on Bangladesh economy:1) Overcoming domestic recourse constraint: It inflows are believed to be more stable and easier to service than other source of foreign private capital such as commercial debts or portfolio investment.
2) Raising the productivity of labor and capital: FDI raise the productivity of labor, and employment quality. Economies of scope and scale and managerial efficiency can raise the productivity and returns of all production input.
3) Generating employment: Increased employment, like investment, will have a multiplier effect on the economy and stimulate a dynamic growth cycle.
4) Easing the balance of payments constrains: It constitutes an inflow on the capital account without devaluing the currency.
5) Raising exports: It is in fact one reason why developing country govt. tries to attract FDI through the creation of export processing zones. (EPZs)
6) Access to markets: It can help host countries gain easy access to the lucrative markets of the rich countries.
8) Benefits to environment: It has better access to and knowledge of environmentally sound technologies and is expected to bring such technologies to the host country.
9) Benefits to consumers: Consumers are benefited from increased FDI inflows in the form of lower prices and improved product quality.
10) FDI may also contribute increased revenue to the government.
Adverse impacts of foreign investment on Bangladesh economy:1. Impact on domestic savings: The FDI may also have a negative effect on domestic savings, as it gives room for an increase in consultation in the recipient country.
2. Recapitalization effect: FDI brings in capital, but also leads to a stream of return flow of profit, other investment incomes and accumulated interest, and repatriation of capital.
3. Effects on balance of payments: FDI have a positive effect on balance of payments, there must be a strong enough positive trade effect to offset the negative recapitalization effect.
4. Denationalization effect: The ownership of firms is transferred from domestic to foreign hands and the foreign share of the nation’s wealth stock increases relative to local share.
5. Impact on development: The impact of FDI on development also depends upon the type of FDI, i.e., whether it is in the form of Greenfield investment or merger and acquisition.
6. Instability: Contrary to the conventional wisdom that FDI is a stable form of longer-term foreign capital inflows, an UNCTAD report shows that FDI can also be a source considerable financial instability.
Q. What are the principle incentives offerred for foreign investment in Bangladesh?1. Tax Generally 5 to 7 years. However , for power generation 3 exemption Exemption: is allowed for 15 years.2. Duty: No import duty for export oriented industry. For other industry it is 5% ad valorem.i. Double taxation can be avoided in case of foreign investors on the basis of bilateral agreements.3. Tax law: ii. Exemption of income tax up to 3 years for the expatriate employees in industries specified in the relevant schedule of Income Tax ordinance.
4. Remittance: Facilities for full repatriation of investment capital, profit and divided.
5. Exit: An investor can wind up to investment either through a decision of the AGM or EGM. Once a foreign investor completes the formalities to exit the country, he or she can repatriate the sales proceeds after securing proper authorization from the Central Bank.
6. Ownership: Foreign investor can set up ventures either wholly owned on in joint collaboration with local partner.
Q. Discuss the various types of post-shipment import finance provided by the banks.1. Loan against Trust Receipt (LTR): LTR may provide when the documents covering an import shipment are given without payment. Importer will hold the goods of their sale proceeds in trust for the bank; until the loan allowed against the trust receipt is fully paid for a period of 30 to 180 days depends on nature & amount of imported goods.
2. Payment against Documents (PAD): It is a post-import finance to settle the properly drawn import bills received by the bank in case adequate fund is not available in client’s account.
3. Loan against Imported Merchandise (LIM): It may be allowed on pledge of goods, retaining margin prescribe on their landed cost, depending of their categories. The Bank obtains a letter of undertaking and indemnity from the parties, before getting the goods cleared through LIM account. LIM may be crested in two ways:
a) LIM on importer’s request: In some cases the importer can’t able to retire the bill by his own source of fund, he may request the bank to clear the goods by creating
b) LIM Account.
c) Forced LIM: In some cases importer do not come forward to retire the goods. In these cases the bank themselves arrange to retire the goods by pledge on Go-down under banks lock & key. This type of payment is called forced LIM.
Q. What are the various methods of payments that are used to settle payments arising from international trade? Briefly describe them.
There are different methods which are adopted to make international payment, through the banking system. Following are the main methods:
1. Letter of Credit: It is a document issued by the importers bank to exporter authorizing him to draw drafts on the bank payable on demand on the specified terms and conditions.
2.Mail Transfer (MT): The payment can be also made in other country by mail transfer. Here the selling office of the bank sends written instructions by mail to the paying bank for the payment.
3.Telegraphic Transfer (TT): Telegraphic is an order by telegram to a bank to pay a specified sum of money to the specified person.
4.Foreign Bank Draft: It is an order drawn by a bank on its foreign branch or correspondent to pay specific sum of money on demand to bearer or to the person.
5.Money Order: The payment can be made to a person who is living in other country through money order.
6.Travels Cheque: It is an order drawn by a bank upon itself to pay on demand the purchaser, of the cheques. The paying bank after comparing the signatures of purchase, which he has signed at the time of the purchasing of cheques and makes the payment.
7.Travels L/C: It is used to finance foreign travel is addressed to banks in foreign countries authorizing the person to whom it is issued to draw drafts on the issuer.
8.Open Account: The goods are sold on our open account. If an exporter has full confidence on the importer he can sell the goods in another country on our open account without getting any surety for the third party.
9.Foreign Exchange Dealers: In every country foreign exchange dealers purchase and sell the foreign currency and pay in the home currency for meeting their local money demands and sell it to the persons visiting foreign countries.
10.Bill of Exchange: It is a main and most effective method of transferring payments that a written order addressed b one person to another. The creditor orders to the debtor to pay a particular amount to the payee.Q. What do you mean by forward exchange?A Forward Exchange Contract is an agreement between two financial institutions, in which they agree to buy or sell foreign currency on a fixed future date, or during a period expiring on a fixed future date, at a fixed rate of exchange. The forward exchange contracts, both buying and selling, may be either fixed or optional term contracts. The party agreeing to buy the underlying assets in the future assumes a long position, and the party agreeing to sell the asset in the future assumes a short position. Forward Exchange Contracts can be used to cover the exchange risk between two country’s currencies.
Q. Distinguish between Spot Rate and Forward Rate.Spot exchange rates are the rates that are applicable for purchase and sale of foreign exchange on spot delivery basis. The term spot denotes immediate happening and closing of transaction to get settled.Forward exchange rates, in contrast, are the rates that are applicable for the delivery of foreign exchange at a certain specified future date. For example, a foreign exchange contract may specify that the payment has to be settled after 3 months, or it may be a 90-day maturity contract.
Q. Distinguish between Direct and Indirect Exchange Rate.A direct quote is an exchange rate expressed in terms of the number of units of domestic currency corresponding to one unit of the foreign currency. In other words, it involves quoting in fixed units of foreign currency against variable amounts of the domestic currency.An indirect quote is the expression of an exchange rate in terms of the number of units of a foreign currency corresponding to a single unit of the domestic currency.In an indirect quote, the foreign currency is a variable amount and the domestic currency is fixed at one unit.What are the factors that contributed to depreciation of Bangladesh Taka recently? Or. Factor considered to depreciation of Bangladeshi CurrencyThe factors affecting behind the currency depreciation of Bangladeshi taka recently are mentioned below:1. High Inflation: The main cause of high inflation in Bangladesh is oil and food price hike in abroad. The high level of in the economy leads to lower the value of local currency taka.
2. Low Foreign direct investment: the growth rate of foreign direct investment is
Showing a declining trend. In the recent past, the FDI growth rate of foreign direct investment is showing a declining trend. In the recent past, the FDI growth rate is severely low.
3. Trade Deficit: For the inception of floating exchange rate regime, the export volume has increasing trends; as the huge amount of trade deficit with an increasing trend.
4. Pressure on international reserves: Growth in exports thus far has not matched rising import bills and slow remittance. Hence there has been a continuous pressure on the international reserves of the country.
5. Demand-Supply mismatch: It has been created in the foreign exchange market, leading the continuous depreciation that has been observing for the last year or so.
Q. Discuss the kind of exchange rate system that operates in respect of Bangladesh taka or, Types of Exchange rate system that operates in respect of Bangladesh.The exchange rate management is one of the central issues of macroeconomic policies of Bangladesh.There are four types of exchange rate system. These are fixed, freely floating, managed float and pegged types. Historically, Bangladesh had been maintaining various pegged exchange rate regimes or fixed exchange rate regimes.1. Fixed exchange rate system
2. Floating exchange rate system
On may 31, 2003, Bangladesh switch to floating exchange rate system by abandoning the adjustable pegged system in order ti discover the actual value of foreign currencies.There are two type of floating exchange rate system like-a. Freely floating exchange rate system
b. Managed float exchange rate system
3. Pagged exchange rate system
Bangladesh had been maintaining various pegged exchange rate regimes, such as pegged to the British pound sterling (1972-1979), pegged to a basket of major trading partners currencies with pound sterling as the intervening currency (1980-1982), Pegged to a basket of major trading partners currencies with US dollar as the intervening currency (1983-1999), and adjustable pegged system
Q. What are the various types of letter of credit? What are the partie involved in a credit?The different types of letter of Credit (LC) can be categorized as follows:-1. Confirmed LC: It issued by a foreign bank, with validity confirmed by a bank Origin. A seller who requires a confirmed by a payment by the origin bank even if the foreign buyer or the foreign bank defaults.
2. Deferred Payment Credit: It provides for payment some time after presentation of the shipping documents by seller.
3. Discrepancy LC: When documents presented do not conform to the LC, it is referred to as a ―discrepancy‖.
4. Documentary Credit: Commercial LC provides for payment by a bank to the
name beneficiary, usually the seller of merchandise, against delivery of documents specified in the credit.
5. Irrevocable LC: LC with a fixed expiration date that carries the irrevocable obligation of the issuing bank to pay the exporter when al terms and conditions of
the LC have been met.
6. Red Clause LC: It allows the exporter to receive a percentage of the face value of the LC in advance of shipment.
7. Revocable LC: It can be cancelled or altered by the Drawer’s bank.
8. Transferable LC: it allows all or a portion of the proceeds to be transferred from the original beneficiary to one or more additional beneficiaries.
9. LC, Payment by sight draft: Document, issued by a bank per instructions by a buyer of goods, authorizing the seller to draw a specified terms, usually the receipt by the bank of certain documents within a given time.
The parties involved in a letter of credit are as follows:
1. Applicant who is opener of LC, generally a buyer of goods to make invoice value of goods.
2. Issuing Bank issues a letter of credit at request of applicant that undertakes to honor a complying presentation of the beneficiary.
3. Beneficiary- It is the seller of the goods or the provider of the services in a standard commercial letter of credit transaction.
4. Advising bank that takes responsibility to communicate and arranges to send Documents to LC opening bank.
5. Confirming bank- confirms and guarantees to undertake the responsibility of payment or negotiation acceptance under the credit.
6. Negotiating Bank who negotiations documents delivered to bank by beneficiary of LC.
7. Reimbursing bank- who authored to honor the reimbursement claim of negotiation/payment/acceptance.
Q. Distinguish between LIM & LTR.LIM: This type of finance is offered to the importer to finance their need for meeting the cost including freight, insurance, and customer and excise duty payable on the imported merchandise. The lending bank mostly pledges the imported goods. The merchandise is released for the use of the importer (borrower) upon repayment of the banks finance and charges either fully or partially, on production of the Delivery Order issued by the banker in favor of the borrower.LTR: Trust Receipt (TR) is a type of short-term import loan to provide the buyer with financing to settle goods imported under Letter of Credit where title of goods is held by the bank. Under a TR arrangement, the bank retains title to the goods but allows the buyer to take possession of the goods on trust for resale before paying the bank on TR due date. TR financing is applicable to goods imported under documentary credit.
Q. Discuss the various types of credit facilities offered to importers by the banks.1. Letter of Credit: This is made in the form of commitment on behalf of the client to pay an agreed sum of money to the beneficiary of the L/C up to fulfillment of terms and conditions of the credit.
2. Loan against Trust Receipt (LTR): LTR may provide when the documents covering an import shipment are given without payment. Importer will hold the goods of their sale proceeds in trust for the bank; until the loan allowed against the Trust Receipt is fully paid.
3. Payment against Documents (PAD): It is a post-import finance to settle the properly drawn import bills received by the bank in case adequate fund is not available in clients account.
4. Loan against Imported Merchandise (LIM): The lending bank mostly pledges
the imported goods. The merchandise is released for the use of the importer (borrower) upon repayment of the banks finance and charges. LIM may be created in two ways:
a) LIM on importer’s request
b) Forced LIM
5. Bank Guarantee: The bank, on behalf of importer constituents or other customers, issues guarantees in favor of beneficiaries aboard, the guarantees may be both performance and Financial.
6. Collection of Import Bills: In this case, the importers may be financed that the bank Collect the import bills by authorized FOREX dealers outside the country and the importer will collect the bills from local bank.
Q. Briefly discuss the advantages and disadvantages of financing imports under LTR.Advantages/ Importance of LTR:A trust receipt is typically used when a bank has lent money for, say import of goods, but the goods have to be released to the importer so they can be sold or prepared for sale. But until the loan has been repaid, the goods still belong to the bank. The trust receipt evidences the banks ownership of the goods. The borrower agrees to put the goods at the disposal of the bank if required to do so, to keep them separate from other goods etc. So they can be identified. Trust receipts normally have a time limit associated with them. This is the time by which the borrower’s business cycle can be expected to have generated the money to repay the loan. It has to be said that the security provide by a trust receipt is rather poor. As its name suggest, the borrower is trusted not to violate the terms of the agreement. There are frequent cases of banks finding that they can’t actually recover their collateral.Disadvantages of LTR:One disadvantages of trust receipt financing is the requirement that a trust receipt be issued for specific goods. For example, if the security is autos in a dealer’s inventory, the trust receipts must indicate the cars by registration number. In order to validate its trust receipts, the lending institution must send someone to the borrower premises periodically to see that the auto number correctly listed because auto dealers who are in financial difficulty have been known to sell cars backing trust receipts and then use the funds obtained other operations rather than to repay the bank. Problems are compounded if the borrower has a number of different locations, especially if they are separated geographically from the lender. To offset these inconveniences, warehousing has come into wide use as a method of securing loans with inventory.
Q. Define Documentary Credit, what are the advantages of a Documentary Credit?A documentary credit – also called a letter of credit—is a conditional guarantee ofPayment in which an overseas bank takes for paying you after you goods, provided you present all the required documents (such as documents title, insurance policies, commercial invoice and regulatory documents) A documentary credit is a separate contract from an export contract. The parties to a documentary credit deal with documents, not the goods that the documents relate to. Documentary credits are a common method of payment in the international trade of goods as they offer some protection to both you buyer.The advantages of a Documentary Credit: For the exporter/ Seller:1. The seller has the obligation of buyers banks to pay for the shipped goods;
2. Reducing the production risk, if the buyer cancels or change his order
3. The opportunity to get financing in the period between the shipment of the goods and receipt of payment (especially, in case of deferred payment).
4. The seller is able to calculate the payment date to a complaint about the goods
5. The buyer will not be able to refuse to pay due to a complaint about the
goodsFor the Importer/Buyer:1. The bank will pay the seller for the goods, on condition that the latter presents to the bank the determined documents in line with the terms of the letter of credit;
2. The buyer can control the time period for shipping of the goods;
3. By a letter of credit , the buyer demonstrates his solvency;
4. In the case if issuing a letter of credit to the buyer.
5. Providing a letter of credit allows the buyer to avoid or reduce pre-payment.
Analyze the importance/impact of remittance in the Bangladesh economy
The ways in which remittance alleviate the poverty of individuals are , in the first round of effects, direct and fairly obvious. They include the following.1. Survivalist income supplementation. For many recipients, remittances provide food security, shelter, clothing and other basic needs.
2. Consumption smoothing Many recipients of remittance, especially inrural areas, has highly variable incomes. Remittance allows better matching of incomes and spending, the misalignment of which otherwise threatens survival and/or the taking on of debt.
3. Education. In many developing countries, education is expensive at all levels, whatever the formal commitments of the State. Remittance can allow for the payment of school fees and can provide the wherewithal for children to attend school rather than working for family survival.
4. Housing. The use of remittances for the construction, upgrading and repair of houses is prominent in many widely different circumstances.
5. Health. Remittances can be employed to access preventive and ameliorative health care. As with education, affordable health care is often unavailable in many remittance-recipient countries.
6. Debt. Being in thrall to moneylenders is an all-too common experience for many in the developing world. Remittance provide for the repayment of debts and for the means to avoid the taking on of debt by providing alternative income and asset streams.
7. Social spending. Day-to-day needs include various social expenditures that are culturally unavoidable. Remittances can be employed to meet marriage expenses and religious and less happily but even more unavoidable, funeral and related costs.
8. Consumer goods. Remittances allow for the purchase of consumer goods, from the most humble and labor saving, to those that entertain and make for a richer life.
Q. What is meant by balance of payments?A record of all transactions made between one particular country and all other countries during a specified period of time. BOP compares the dollar difference of the amount of exports and imports and imports, including all financial exporters and imports. A negative balance of payments means that more money is flowing out of the country than coming in, and vice versa. Balance of payments may be used as an indicator of economic and political stability.
Q. Distinguish between Fixed Exchange Rates and Floating Exchange Rate.A fixed exchange rate the government sets and maintains as the official exchange rate. A set price will be determined against a major world currency. In Order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged.A floating exchange rate is determined by the private market through supply and demand. It is often termed ―self-correcting‖ as any differences in supply and demand will automatically be corrected in the market. As see, if demand for a currency is low, its value will decrease, thus making imported goods more expensive and stimulating demand for local goods and service.
Q. What are the factors responsible for appreciation or depreciation of a currency?Or,Factors that effected to appreciation or depreciation of a currencyRelative Product Prices: If a country’s goods are relatively cheap, foreigners willWant to buy those goods, In order to buy those goods, they will need to buy the nation’s currency.Supply and Demand: The principles of supply and demand apply to the appreciation and depreciation of currency values. If a country injects new currency into its economy, it increases the money supply.Inflation and Deflation: Inflation occurs when the general prices of goods and services that are causes of the value of the currency to depreciate, reducing purchasing power. Simultaneously, deflation acts reversely.Monetary Policy: A country with easy monetary policy will be increasing the Supply of their currency, which will cause the currency to depreciate. This country with restrictive monetary policy will be decreasing the supply and the currency should appreciate.Economic Outlook: The negative impacts on major economic indicators like retail sales, GDP and a high/rising unemployment rate can also depreciate currency value. If the economy is in string growth period, the currency value will appreciates.Trade Deficits: When the trade deficit of a country increases, the value of the domestic currency depreciates. Simultaneously, when it decreases, the value of its domestic currency appreciates.
Major Factor that Affect the Foreign Exchange Market in BangladeshSome of the major factors that affect the foreign exchange market in Bangladesh are:i) Exchange rates
ii) Remittances
iii) Foreign Exchange Reserve
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