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Ans.

1 EXIM bank is the apex bank which deals in providing project finance and
direct finance. The EXIM bank has taken over the operations of the international
finance wing of the industrial development bank of india (IDBI). The main
purpose of the bank is to finance medium and long-term loans to the exporters
and thus facilitate international trade in the country.

The main objectives of EXIM bank are as follows:


1. To provide financial assistance (medium and long-term) to exporters and
importers.
2. To promote international trade from the country.
3. To function as the principal financial institution for coordinating the
working of institutions engaged in providing trade finance.
4. To deal with all the issues that may be considered to be incidental or
conducive to the attainment of above objectives.

The main Functions of EXIM bank are to provide fund based and non-fund based
assistance.
A. Fund based assistance
1. Assistance to exporters in India:
a. Assistance in the form of deferred credit exports
b. Credit facilities for deemed exports
c. Financing of indian joint ventures abroad
d. Financial assistance to units located in EPZ/SEZ and EOUs
e. Availability of pre-shipment finance in order to procure raw materials and
other intermediate goods.

2. Assistance to indian commercial banks


a. Refinance facilities to lend to indian exporters who extend term credit to
importers.
b. Export bills rediscounting facility to commercial banks in india who have
earlier discounted bills of exporters.

3. Assistance to Overseas Buyers

a. EXIM bank offers Overseas Buyers Credit facility to foreign importers.

4. Assistance to Overseas Banks


a. The EXIM bank extends lines of credit to provide finance to financial
institutions overseas.
b. The bank also provides relending facilities to banks in foreign countries
and makes available finance to the clients for import of goods into the
country.

(B) Non-Fund based assistance


5. Guarantees and bonds:
EXIM bank provides guarantees as a non-fund based assistance. These
guarantees are usually in the form of bid bonds, performance guarantee, etc.
The commercial banks also assist in providing these guarantees.
6. Advisory services:
a. The bank advices indian companies abroad in order to find sources of
financing abroad.
b. The bank also provides advisory services on international exchange
control practices.
c. It also offers financial and advisory services for constructions abroad.
d. Forfeiting services are also offered for the exporters.

Conclusion:

Ans.2 Pre shipment finance to exporters goes through following stages from
sanction to its liquidation.
1. Appraisal and Sanction of limits: Banks check various aspects while
making an appraisal and sanction of export credit to exporters. Some of
the important aspects that banks check are product profile of the exporter
in international market, political and economic environment of the country
of import etc. Banks also look into the creditworthiness ans solvency
report of the prospective buyer, with whom the exporter proposes to do
business. In order to arrive at a fruitful conclusion about the
creditworthiness and solvency position of buyers; banks consult various

credit rating agencies like ECGC or private consulting agencies like SMERA,
Vistas, Dun and Brad Street, etc.

2. Disbursement of packing credit advance: On completion of successful


appraisal of various aspects for disbursal of exports credit; banks check
whether the exporter has executed the list of documents as stipulated by
it for this purpose. Disbursement of export credit is normally allowed only
after the successful submission of all documents by the exporter.
Sometimes, an exporter may not have got the confirmed order but is
expecting to get one during festivals and needs finance to keep his goods
ready by the time the order comes in. Under such circumstances, RBI has
allowed banks in india to provide a special packing credit facility. This
special facility is known as Running Account Packing Credit.

3. Follow up of Packing credit advance: Banks usually hypothecate the stock


of the exporter and exporter is required to submit stock statement
providing all the necessary details about the stocks. Banks use such stocks
as a guarantee for securing the pre shipment export credit in advance.
Banks may demand such information from the exporter at the time as
they deem fit keeping mind the exporters reputation and
creditworthiness. In addition, banks also physically inspect the stocks at
regular intervals at the premises of the exporter.

4. Liquidation of packing credit advance: Pre shipment export credit has to


be liquidated out into post shipment credit after the submission of export
bills by the exporter or alternatively on realization of export proceeds of
the relevant shipment. The liquidation of pre shipment export credit can
also be done by the payment receivable as export benefits from the
Government of India. If the exporter has failed to provide the goods for
export or export could not take place due to cancellation of order or any
other reason; then banks are authorized to recover the entire advance
from the exporter along with a certain interest rate.

5. Overdue Packing credit: In some cases, banks may have to consider pre
shipment export finance as overdue if the exporter fails to liquidate the
packing credits as per stipulated rules and regulations of RBI. Banks are
allowed to grant overdue finance in bonafide cases but if the condition
persists and the exporter fails to liquidate the packing credit even after
such overdue period; then the banks can take necessary actions to
recover such dues as per normal recovery procedure.

Ans.3 Various Trade financing schemes are as follows:


A. Export Credits: The EXIM Bank regularly offers credit facilities for exports
to be availed by companies in India and abroad as well as commercial
banks. The export credits offered by EXIM bank of India can be divided in
the following manner:
1. Companies in India executing overseas contracts:
Various exporters who enter into contracts with foreign counterparts can
avail facilities like:
a. Pre shipment credit: this facility is provided at the pre shipment stage and
can be offered in both indian rupees and foreign currency.
b. Suppliers Credit: This kind of post shipment finance which is given by
indian exporters to their overseas importers.
c. Project Exports: the EXIM Bank extends finance for executing project
exports abroad.
d. Export of Consultancy and Technological Services: The exporters of
consultancy and technological services can avail credit facilities so that
they can fulfill the requirements of the importers.
e. Guarantees: These instruments are required by indian exporters to
execute export contracts through guarantees. These guarantees are also
required for various import transactions.

2. Commercial Banks: The Exim Bank of India offers rediscounting facility to


commercial banks. This facility enables the banks to rediscount the export bills of
their customers.

3. Facilities for Indian companies: The EXIM bank extends finance for deemed
exports. Deemed exports are exports made by indian companies to units
situated in SEZs or EOUs.

4. Overseas Entities: The EXIM bank offers buyers credit for imports from
india and abroad. This credit is usually provided on deferred payment terms.

(B) Finance for Export Oriented Units: The EXIM Bank provides finance to
export oriented units which are exporting as well as non-exporting. The main
kinds of financial instruments are:

1. Exporting Companies: These companies are offered term finance and


working capital finance in order to fulfill their export obligations.
2. Non-exporting companies: The bank provides working capital finance for
importing raw materials in bulk as well as importing equipment.

(C) .Overseas Investment Finance: The EXIM bank assists Indian companies to
finance their equity participation in joint ventures abroad as well as in wholly
owned subsidiaries. The Bank also provides direct financing to overseas joint
ventures and wholly owned subsidiaries.

(D) SME and Export Finance: The Small and Medium Enterprise (SME) sector
contributes significantly to the socio-economic growth of the country. This growth
is aided through growth in exports and employment generation. SMEs also help
in building the industrial base of the country and increasing entrepreneurship.
The services offered by various consultants to these SMEs are quite costly.

(E) Agricultural and Export Finance: The bank has a separate agri business
group to look into the financing requirements of the export oriented companies
dealing agricultural products. Agri finance for exports is provided through term
loans, export credit in the form pre shipment finance, guarantees, import finance
and buyers credit.
The EXIM Bank in order to develop a strong background for provided
export assistance to agricultural units has built strong linkage with various other
prominent stakeholders in this sector. The main stakeholders are Ministry of Food
processing industries, Government of India, NABARD, APEDA and etc.

Ans. 4 Risks Coverage under ECGC policies:


ECGC policies protect the exporters from a wide range of commercial and
political risks and provide an exporter a competitive edge in dealing in
international trade and helps in expansion of sales.
1. Risks Covered under ECGC Policies: The following risks are covered from
the date of shipment of cargo under the standard policy of ECGC.
Commercial Risks
a. Cases of insolvency of the importer.
b. Cases under which the importer has failed to accept the cargo. Such cases
are subject to certain conditions as specified by ECGC

Political Risks
a. The circumstances under which the importer country government may
restrict the import of certain cargo or any other government action
resulting in blockage or delay the transfer of payment made by the
importer such as Forex Restrictions.
b. The cases of war, rebellion, civil war, revolution or civil disturbances in the
importers country.
c. The cases under which any other loss occurred outside India and such loss
is usually not insurable by the General Insurance Companies and such
losses are also beyond the control of both the exporter and the importer.

2. Risks not covered under the standard Policy:


a. Any disputes of commercial nature such as disputes related to quality of
product or services except the cases under which the exporter has
obtained the degree in his favour from a competent court of law in the
importer country.
b. Losses due to any reasons or causes which are inherent in the nature of
the cargo such as fungal infection in marine products during voyage.
c. Any losses or damages which are usually insurable by the General
Insurance Companies.
d. The losses related to exchange rate fluctuation as the invoiced country
may appreciate till the payment may come resulting in such losses.

Ans.5 Methods of Import Finance


Importers cash flow is greatly affected by the delays in realizing payments from
overseas suppliers. This proves to be a great burden on the importers. To
overcome these challenges, import finance is available for these traders. Import
financing has a number of benefits like its ability to be tailor made depending
upon the need of the business. Various methods of import finance are as follows:
1. Financing import under L/C: After the L/C is opened, the issuing bank
sends it to the advising bank in the exporters country. The exporter is
known as a beneficiary while the importer is known as an applicant. If the
beneficiary is satisfied by the terms and conditions specified in the L/C, he
ships the goods and obtains the documents as mentioned in the contract.
These documents are then submitted to a bank for checking the
conformity with the credit. After checking, the bank pays the exporter and
the documents are sent to the issuing bank. After the clearance of the

goods and their dispatch a transport document is sent to the bank while
on the other hand the goods and the transport document are delivered to
the importer.

2. Financing against Bills under Collection: Here imports are not covered by
documentary credit but are covered by documentary collections. Under
collections, the exporters bank is known as the collecting bank while the
importers bank is known as the remitting bank. The documents are
forwarded from the collecting bank in order to collect export proceeds
from the importer while payment is made through the remitting bank. The
bank presents these documents to the importer for either payment or
acceptance. Apart from the collection terms of payment at sight and
acceptance, the exporter might send the shipping documents directly to
the importer. This is a case of clean collection.

3. Financing imports against Deferred Payment: In case the supplier has


agreed to supply goods on credit terms which exceeds six months, then
imports are said to be deferred or on deferred payment. In India, the
authorized dealers have to approach the Reserve Bank of India and get
approval for advance payment along with bank guarantee and
installments. The documents to be submitted for this approval are
exchange control copy of import license and a copy of the contract. To
import under deferred payment terms, the importer should have sufficient
cash to finance the installments.

4. Financing under Foreign Credit: International financial institutions and


even foreign governments provide assistance to indian traders in the form
of loans and development credits. The loans granted are of two kinds:
loans in free foreign currency and tied loans. The payments under foreign
currency can be made through a letter of commitment or a reimbursement
method.

5. Import loans by export-import bank of India: EXIM bank provides finance


for importing goods from third countries which are required for executing
overseas projects which have been won by indian exporters. The EXIM
bank finances imports which are used for the purpose of exports. EXIM
bank also provides finance for bulk imports of units and issues a letter of
commitment for financing on the request of the commercial bank as per
the requirement.

Import Financing Schemes:


Import finance is defined as the funding facility or loan provided to the importer
to provide sufficient funds for purchase of goods. Each loan varies with the
requirements of the importer and the type of goods imported.
The bank or the third party who provides the import financing facility can
assist in improving the importers cash flow by providing immediate cash to
purchase the required goods. The third party also runs credit protection
programmes which safeguards credit lenders from lending money to customers
who do not have the capacity to pay back. The bank also assists in opening of an
L/C.

Ans.6 Foreign exchange market, known also as forex market, is by far the largest
market in the world. Forex market transactions include trading between large
banks, central banks, foreign exchange dealers, governments and other financial
and non-financial institutions. Forex market is governed by global and regional
developments, the economic stability of a country and also through market
sentiments. The unique features of a foreign exchange market are:
1. It has one of the highest trading volumes in the world.
2. It has extremely large amount of liquidity in day to day operations.
3. Forex market never sleeps i.e. it works 24 hours a day, except on
weekends
4. It has a large geographical dispersion.

Participants in foreign exchange markets


Functioning of the forex market is informal taking place every minute, round the
clock and participants have different levels of access depending on their location
or capacity of participation. At the top of forex market operations are inter-bank
participants, which constitute large investment and banking firms. At the lower
level of access in forex market, difference between the bid and as prices widens
as the volume of business is small.
Various participants of forex markets are:
1. Banks: the inter-bank market constitutes not only the largest size of global
forex market as it caters to both the majority of commercial turnover and
large amounts of speculative trading that take place every day in global
forex market. Due to quick access to information, efficient understanding
of economic fundamentals, large banks trade billions of dollars every day.
Use of technology has facilitated banks to conduct their large business

operations at the click of a mouse. This has helped banks to respond on a


real-time basis.

2. Commercial companies: Commercial companies include mainly


multinational and transnational companies that trade foreign currencies in
order to pay for goods and services and investments abroad. On a
temporary basis, forex operations by commercial companies bring about
little exchange rate as volumes traded are lower. In the long run, impact of
commercial companies can be an important factor, especially in cases,
where they cover themselves for long-term exposure.

3. Central Banks: Central banks like the Reserve bank of India (RBI) play an
important role in international foreign exchange market. If rupee is falling,
RBI can intervene by supplying more dollars to the system to control
deprecation of rupee. The central bank will do this only in cases of free fall
to protect investor/market sentiments. Central bank also intervenes in
forex markets to control inflation and interest rates by having official or
unofficial target rates for their currencies.

4. Investment management firms: Investment management firms participate


in forex market to typically manage large accounts on behalf of their
customers such as asset management companies, insurance companies,
pension funds and endowments funds. Their participation in forex markets
facilitates the orderly transactions in foreign securities on behalf of their
clients.

5. Hedge funds: Hedge funds are also active participants in global forex
markets especially when the quantum of risks is increasing due to
globalized integrated business operations among countries.

6. Retail forex brokers: Retail forex brokers are the smallest but not the least
important market participants in forex market. They are also referred as
market makers as they handle currency operations every minute in order
to cater to the needs of ordinary individuals, remittance senders, etc.