| Q.1 |
Complete the following statements with appropriate
answer: (10) |
i |
The direct import and export relationship between
two countries is technically known as ________________ trade whereas
when they deal world wide, it is termed as ______________________
trade. |
ii |
Services like shipping, tourism, banking, insurance
and government payment overseas are classified as ____________________
imports and exports for the purpose of balance of payment. |
iii |
The uncertainty about the _____________________
rate is the most obvious risk of international trade. |
iv |
Foreign currency account can be fed by remittances
received from abroad, traveler cheques issued outside Pakistan,
foreign currency notes and foreign exchange generated by encashment
of securities issued by the ____________. |
v |
A letter of credit established by a bank on
the behalf of the applicant is a ____________________________ based
facility. |
vi |
There is no bar on non-residents maintaining
accounts jointly with residents. These accounts shall be treated
as _____________________. |
vii |
Any person who wishes to purchase foreign exchange
for travel abroad must lodge an application for onward remittance
on Form ___________________ . |
viii |
Any outward remittance once reported to State
Bank of Pakistan being subsequently cancelled either in full or
in part will be reported as cancellation of outward remittance as
_________________________________________ . |
ix |
The overall foreign exchange risk position
as at the close of business each day of any commercial bank shall
not exceed _____________ % of the capital of the bank. |
x |
All authorizations given by State Bank of Pakistan
for release of foreign exchange are valid for a period of ____________________
days from the date of approval, unless they are expressly approved
for a longer period. |
| Q.2 |
Please consider the following
statements and furnish your comments specifying the reasons for
agreement or disagreement as the case may be. If any article of
UCP 500 is applicable to the relevant situation also quote the same
in support of the said justification. (05) |
i |
Articles of UCP 500 are applicable on “Documentary
Credit(s)” and “Standby Letter(s) of Credit” and
as such they are identical in nature. |
ii |
A letter of credit carries detail of goods
covered under the credit as “Brand new 5 Sulzer Machines Model
4256 as per contract No. AK-590”. On clearance of consignment
the applicant observed that the machines are used and not brand
new and asked the bank that payment under the letter of credit should
be withheld since there has been a violation of contract. |
iii |
The amount of the letter of credit has been
enhanced by the issuing bank from USD 40,000 to USD 50,000. The
issuing bank is irrevocably bound to the said amendment from the
time it is advised by the advising bank. |
iv |
A negotiating bank must examine and ensure
the genuineness of all documents presented as per terms of the letter
of credit through discreet enquiries and other available methods
before releasing any payment to the beneficiary. |
v |
A seller has quoted the price of certain machinery
as USD 40,000 (CPT). It implies that the price of the commodity
includes local freight whereas freight from the port of shipment
to the port of destination is the responsibility of buyer. |
| Q.3 |
Please write the alphabate of selected choice
in the answer column: (20) |
i |
For extending credit facilities a bank may:
A) Mark lien on FC account for credit cards
only;
B) Mark lien on FC account for foreign guarantees
only;
C) Mark lien on FC account for foreign guarantees/credit
cards/loans etc;
D) None of the above |
ii |
Under URC Brochure 522, export documents sent on collection basis
must be returned/pad by the Bank within
A) 60 days; B)
30 days; C)
07 days; D)
None of the above |
iii |
The Special Drawing Rights (SDRs)
A) Have currency notes as well as coins B)
Have currency notes only
C) Have neither currency notes nor coins D)
None of the above |
iv |
The Asian Clearing Union
A) Has at present 10 countries as members B)
Has only 7 countries as members
C) Does not exist any more
D) None of the above |
v |
As per FE Manual a bill of lading must be:
A) Received for shipment
B) Clean Shipped on Board
C) Claused shipped on board D)
None of the above |
vi |
Value date is the date on which:
A) A foreign exchange sale/purchase
deal is agreed upon
B) Funds receipt/payment actually
takes place
C) The bank/customer discuss about
the rates
D) None of the above |
vii |
Foreign exchange transactions involve both spot and forward delivery.
A) There are no risks either
in spot or forward transactions
B) In spot transaction there
is no risk but forward transaction involve risks
C) Both in spot and forward foreign
exchange transactions there are inherent risks involved
D) None of the above |
viii |
In foreign exchange, spot transaction is required to settled
on the
A) Same day B)
Normally within two business days
C) In a fortnight D)
None of the above
|
ix |
Arbitrage is defined as a
A) The purchase of a currency from a center
where it is cheaper for immediate resale in the center where it
is more expensive
in order to make a profit.
B) Sale of currency C)
Purchase of currency D)
None of the above |
x |
In forward rate transaction, the delivery of the foreign exchange
takes place
A) One-month after the contract
is agreed upon
B) Three-month after the
contract is agreed upon
C) One, three, or six months
after the contract, as agreed upon.
D) None of the above |
xi |
A treasury needing US Dollars.
A) May purchase from a bank
in a Pakistan or from abroad.
B) Must purchase from an American
Bank in U.S.A.
C) Must purchase from an American
Bank in Pakistan.
D) None of the above |
xii |
An efficient treasurer.
A) Must keep the position always square. B)
Must keep the position always over bought.
C) Has day to day strategy to keep the ‘position’ in
line with current situation within the approved limit.
D) None of the baove |
xiii |
As per UCP (500) under a letter of credit, insurance cover
A) must be equal to the amount of the invoice B)
must be 110% of the amount of the invoice
C) must be up to 90% of the amount of the invoice
D) None of the above |
xiv |
At the end of a business day a bank’s total foreign currency
sales and liabilities exceed its total purchases and assets; this
position is known as
A) “overbought” B)
“oversold” C)
“square” D)
None of the above |
xv |
SBP as the Central Bank:
A) Has obligations to
buy/sell foreign exchange from/to Authorized Dealers;
B) Has the right but not
the obligation to buy/sell foreign exchange from/to Authorized Dealers;
C) Has the right but also
the obligation to buy foreign exchange from Authorized Dealers;
D) None of the above |
xvi |
An exporter prefers to have
A) a revocable LC
B) an irrevocable LC
C) a confirmed irrevocable LC
D) None of the above
|
xvii |
A letter of a credit is a definite undertaking of:
A) applicant B)
beneficiary C)
issuing bank
D) None of the above |
xviii |
SBP’s prior permission is required for
A) opening a nostro account B)
opening a vostro account
C) no permission is required for either D)
None of the above |
xix |
If balance of payment of a country is negative; it means the
A) the country is less risky B)
the country is more risky
C) the country has no risk D)
None of the above |
xx |
Which one is less risky from issuing bank’s point of view:
A) Tender Guarantee B) Performance Guarantee
C) Advance Payment Guarantee D) None of the above |
| Q.6 |
M/s Shafi Sons have exported
goods worth USD 200,000 on 90 days after sight under letter of credit
issued by Barclays Bank London. They have since submitted export
documents in conformity with the terms of the credit and now are
in urgent need of rupee funds to manage their working capital requirements.
They approached their bankers who happened to be the negotiated
bank as well for financing. The following rates are quoted by the
Bank. (10) |
| |
T.T.
Selling T.T.
buying OD
buying
Spot USD rates 60.80
60.60
60.43
Discount/Forward
Rates
30
days 60
days 90
days
120 days
USD Discounting Rate
60.26
59.92 59.57
59.23
USD Forward Purchase Rate 60.85
61.06 61.25
61.41
Rupee financing rate of mark up 14% p.a. (commercial/corporate
financing) |
| |
Required : Determine the cost effective
financing for the exporter assuming that the export bill has been
accepted and maturity date has been received. The negotiating bank’s
policy permits discounting, forward purchase and or rupee financing
to the concerned exporter. |
i |
How much funds will be received by M/s Shafi
Sons, if the negotiating bank agrees to discount the documents,
assuming that the bill will be due after 90 days from the date of
discounting. |
ii |
If the exporter makes a forward purchase contract
with his banker for the export bill, and simultaneously makes arrangement
for rupee financing for 90 days to the extent of the amount of export
bill at the prevailing spot rate of exchange (T.T. buying). How
much export proceeds will be due to him net of rupee cost of financing
at maturity. |
iii |
Which financing will be more feasible for the
exporter. |
Q.7 |
Bank ‘X’ and
Bank ‘Y’ have the following exchange position at the
close of business on 1st January 2007. (10) |
| |
| Bank ‘X = |
USD 100,000 (overbought) |
| Bank ‘Y = |
USD 150,000 (oversold) |
On 2nd January, 2007, the following transactions have taken place:
USD
| Payment against documents (PAD) |
450,000 |
| Foreign Bills Purchased |
150,000 |
| Inward remittances |
45,000 |
| Outward remittances |
39,000 |
| Inward remittance for credit to FC A/c |
24,000 |
| Traveler Cheques purchased |
12,000 |
| Forward Sale Contracts |
64,000 |
| Spot purchases from interbank market |
500,000 |
FDBC realized – payment withheld at
the request of the exporter |
94,000 |
|
i |
Required :
Compute exchange position of each bank separately assuming that
similar transactions have taken place at both banks for the corresponding
amount as mentioned above. |
ii |
If both the banks intend to square their respective
exchange position on 2nd January, what options are available to
each of them individually. |