IB0018 EXPORT IMPORT FINANCE

1Q.

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Discuss any 5 trade financing schemes by EXIM bank in brief.

Answer:
The Export-Import Bank popularly known as EXIM bank has been set up under an Act of
Parliament passed in 1982. The main purpose of setting up the EXIM Bank was to finance,
facilitate and promote foreign trade from India. The EXIM Bank of India plays the role of a
coordinator, consultant, promoter and a source of finance. The bank acts a coordinator for
clearance of Projects and Services Exports and Deferred Payment Exports of the Working
Group Mechanism. The working group is comprised of representatives of the Government of
India, Reserve Bank of India, ECGC and various other commercial banks. The working group
clears contracts sponsored either by the EXIM Bank or Commercial Banks and provides a one
window mechanism for clearance of export proposals. A number of financing schemes are
provided by RBI.

2Q. What is the need for export finance in India? Write a short note on export
financing facilities in India.
Answer:
Need for export finance
Export finance refers to financial assistance extended by banks and other financial
institutions to businesses for the shipping of products outside a country or region. Export
financing enables MSMEs to expand its reach to a global audience. Export financing is a major
component of successful export transactions. Exporters need finance for purchasing,
processing, packaging and for their day to activities. Banks in every country provide export
finance facilities on liberal terms. In India too, all the AD banks provide export finance to
exporters under the guidelines provided by RBI. An exporter needs finance at two stages, i.e.,
before shipment (pre-shipment) and after shipment (post shipment).
Export financing facilities in India
'Pre-shipment credit' means any loan or advance granted or any other credit provided by a
bank to an exporter for financing the purchase, processing, manufacturing or packing of
goods prior to shipment, on the basis of letter of credit opened in his favour or in favour of
some other person, by an overseas buyer or a confirmed and irrevocable order for the export

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of goods from India or any other evidence of an order for export from India having been
placed on the exporter or some other person, unless lodgement of export orders or letter of
credit with the bank has been waived.
Post-shipment Credit' means any loan or advance granted or any other credit provided by an
institution to an exporter of goods from India from the date of extending credit after shipment
of goods to the date of realisation of export proceeds.
The

purpose

of

the

export

finance

facilities

is

to

provide

financial

support

to

suppliers/exporters in the Member Countries to enable them to perform export transactions.

Under this category, There are Pre-export Finance, Single/Multiple Supplier Refinancing
Facilities and also Export Finance Facility Guarantees.
Typically, suppliers/exporters loans will be short-term. Longer tenors may apply to cases
where traded goods have long manufacturing periods (e.g. capital goods) and /or trade
contracts terms provide deferred payment options.

3Q. As an exporter, what benefits you can get from Post shipment finance
scheme? Discuss the types of post
shipment credits.
Answer:
Post shipment finance scheme
Post shipment finance may be defined as a loan or advance granted by banks to their
exporter clients after the shipment of goods till the date of receipt of payment from overseas
buyer or credit opening bank. It is a short term credit provided by banks to exporters to meet
their working capital requirements after the shipment of goods. When an exporter has made
the shipment and submits his documents to the bank, the bank adjusts the packing credit
granted earlier and extends the remaining amount of export bill to exporter. The amount of
packing credit given earlier is also converted into post shipment finance.
Benefits

Improves liquidity as you get paid for your exports bills in advance before the bills are

due for payment

It eases your cash flow position by providing greater financial liquidity and flexibility in

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administering your receivables.

It allows you to extend more liberal terms of payment to your existing buyers as well
as new buyers thus competiting with foreign suppliers Assign the benefits under your
credit insurance policies as additional collateral to banks for additional financing or

financing on better terms.

Export bills eligible for discounting can be under various modes of payments. These

include the following:

Open Account Terms Documents Against Acceptance (DAA), Document Against
Payments (DAP) Post Dated Cheques Letters of Credit Bank Guarantees

Types of Post Shipment Finance

Post Shipment Finance is a kind of loan provided by a financial institution to an exporter or
seller against a shipment that has already been made. This type of export finance is granted
from the date of extending the credit after shipment of the goods to the realization date of
the exporter proceeds. Exporters dont wait for the importer to deposit the funds.
The post shipment finance can be classified as:

4Q.

Export Bills purchased/discounted.

Export Bills negotiated
Advance against export bills sent on collection basis.
Advance against export on consignment basis
Advance against undrawn balance on exports
Advance against claims of Duty Drawback.

Write short notes on:

a)
Export credit guarantee corporation
b)
Foreign exchange risk.

Answer:
a) Export credit Guarantee Corporation
Almost all countries of the world have set up organizations in their countries to provide credit
risk insurance facilities to their exporters. In India, Government of India has set up ECGC to
cover export credit risk. In 1957, Government of India set up the Export Risk Insurance
Corporation of India. In 1964, the name was changed to Export Credit and Guarantee
Corporation Ltd. Once again in 1983, the name was changed to Export Credit Guarantee
Corporation of India Ltd. It is a Government of India organization, having Head office in

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Mumbai. There are a number of regional offices and branch offices all over India. ECGC is
under the administrative control of Ministry of Commerce and is managed by a Board of
Directors consisting of representatives from government, banking, insurance, trade and
industry.
Two main functions of ECGC are:
1. It covers the risk of non-payment due to commercial and political risks arising in
respect of exports on credit terms.
2. It issues guarantees to banks underwriting a major part of the loss that may arise in
respect of advance or other support they extend to exporters in connection with their
export business.
b) Foreign exchange risk
Foreign exchange risk is the risk to the value of ones assets when it is valued in another
currency. The exchange rate of a currency to another may be volatile. It is this change in
value of the currency that gives rise to foreign exchange risk. Depreciation in the currency in
which your assets are denominated will result in a lower value of your assets when measured
in another currency compared to the period before depreciation.
Businesses without commercial contracts expressed in domestic currency (or fixed by an
agreed rate of exchange) are fully exposed to exchange risk. Exchange risk may arise
because of exchange rate movements in the period from the original commercial contract to
the time of settlement of the domestic equivalent of the foreign currency amount.

5Q. There are several factors that affect the exchange rate of a country. Explain
any 5 determinants of exchange rate.
Answer:

6Q.

What is custom duty? Discuss its types.

Answer:
Custom duty
A tax levied on imports (and, sometimes, on exports) by the customs authorities of a country
to raise state revenue, and/or to protect domestic industries from more efficient or predatory

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competitors from abroad.

Customs duty is based generally on the value of goods or upon the weight, dimensions, or
some other criteria of the item (such as the size of the engine, in case of automobiles)
Types
Export duties are levied occasionally to mop up excess profitability in international prices of
goods in respect of which domestic prices may be low at the given time. But the sweep of
import duties is quite wide. Import duties are generally of the following types:Basic Duty: - it may be at the standard rate or, in the case of import from some other
countries, at the preferential rate.
Additional customs duty: - equal to central excise duty leviable on like goods produced or
manufactured in India. Additional duty is commonly referred to as Countervailing duty or
C.V.D. It is payable only if the imported article is such as, if produced in India, its process of
production would amount to 'manufacture' as per the definition in Central Excise Act, 1944.
Exemption from excise duty has the effect of exempting additional duty of customs.
Additional duty is calculated on a value base of aggregate of value of the goods including
landing charges and basic customs duty. Other duties like anti-dumping duty, safeguard duty
etc are not taken into account. In case of goods covered by provisions of the Standards of
Weights and Measures Act, 1976, the value base would be the retail sale price declared on
the package of the goods less the rebate as notified under the Central Excise Act, 1944 for
such goods
True Countervailing duty or additional duty of customs: - is levied to offset the
disadvantage to like Indian goods due to high excise duty on their inputs. It is levied to
provide a level playing field to indigenous goods which have to bear various internal taxes.
Anti-dumping Duty/ Safeguard Duty: - for import of specified goods with a view to
protecting domestic industry from unfair injury. It would not apply to goods imported by a
100% EOU (Export Oriented Units) and units in FTZ (Free Trade Zones) and SEZ (Special
Economic Zones). On export of goods, anti-dumping duty is relatable only by way of a special
brand rate of drawback.

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Education cess: - at the prescribed rate is levied as a percentage of aggregate duties of

customs. If goods are fully exempted from duty or are chargeable to nil duty or are cleared
without payment of duty under prescribed procedure such as clearance under bond, no cess
would be levied.