Q.1    Complete the following statements with appropriate answer:                                           (10)

                                                                                                                                                   (Answer)

i	A systematic record, over a given period of time, of all international economic transactions of a country, is technically termed as ___________________________.
ii	When the index of export prices falls relative to the index of import prices, the ____________ of a country are said to be deteriorating.
iii	Under _____________________ it is the seller who is confident about the payment by the buyer under agreed arrangement, whereas under ___________________, it is the buyer who is confident on due fulfillment of trade transaction on the part of the seller.
iv	When a customer cannot fulfill the transaction under a forward contract, the bank will _______________________ that contract at the spot rate on the date of default.
v	When there are no remarks indicating damage to the goods, a bill of lading is said to be ____________________.
vi	One of the purposes of calling __________________ invoice is to check that the exporter is not dumping goods at artificially low price in the importing country.
vii	Under documentary_____________ the exporter retains control over the goods until either payment is made, or a legally binding undertaking to pay is given by the importer.
viii	At the request of, or with the permission of the issuing bank, the _______________ adds its own irrevocable undertaking to honour the credit if the issuing bank would default.
ix	In a __________ payment credit, the issuing bank simply guarantees that payment will be made on a fixed or determinable future date, provided the other terms have been fulfilled.
x	The word circa or about or approximately used in connection with the amount of the letter of credit indicates that a difference of _________________either way can be allowed.

Q.2    State True or False in the answer column. Give brief reason for your selection at the space           provided below the question:                                                                                           (25)
                                                                                                                                                 (Answer)

i	State Bank of Pakistan may at its discretion buy US Dollars from and sell to Authorized Dealers both ready and forward.
ii	The Authorized Dealers can mark lien on foreign currency accounts in respect of banking facilities like credit cards, bank guarantees, loans etc. availed by the Account holders.
iii	The term inward remittances include remittances by D.Ds, M.Ts and T.Ts and not purchase of traveller cheques, drafts and currency notes.
iv	All authorizations given by State Bank of Pakistan for outward remittances are valid for a period of 45 days from the date of respective approval, unless otherwise specified therein.
v	The exporters can retain the export proceeds including advance payments in foreign currency with an Authorized Dealer in Pakistan until the rate of exchange becomes favourable to their satisfaction.
vi	A usance letter of credit can be amended to sight at the request of the applicant.
vii	State Bank of Pakistan’s approval is required for remittance of Bank charges like LC advising and amendment commission etc.
viii	Authorized Dealers may approve remittances of fee for approved correspondence courses directly on form ‘M’ against production of demand notes received from abroad.
ix	In case of reimbursable loans and credits, imports in the first instance are financed from Pakistan’s own foreign exchange resources.
x	State Bank of Pakistan issues licences for handling of foreign exchange business to each branch individually of every Bank.
xi	When the opportunity cost differs between countries, each country will gain by relocating their resources where they enjoy a better comparative advantage.
xii	The account which a bank maintains with an overseas bank is called its ‘vostro’ or our account with you.
xiii	Commercial banks which deal in foreign exchange business establish an extensive network of correspondents throughout the world to facilitate smooth handling of this business.
xiv	The obligation of confirming bank automatically covers to each and every amendment made to the original letter of credit, such as increase in amount or validity or both.
xv	Standby letters of credit and documentary letters of credit are alike.
xvi	A bank at the request of the opener can establish a letter of credit which calls for draft(s) drawn on openers.
xvii	The negotiating banks must ensure that documents presented under the credit are in conformity with the stipulations mentioned in the sales contract, if a reference to the sales contract is made in the relative letter of credit.
xviii	A deal made on spot rate dated 1st August will be settled on 3rd August, if there are no national or international holidays in between.
xix	The documents contain discrepancies, the negotiating bank could cable the issuing bank for permission to pay despite the discrepancies.
xx	Under documentary collection, the collecting bank is the bank to which the principal has entrusted the responsibility of collection normally the exporter.
xxi	The tenor of the draft is 30 days from the bill of lading date. The bill of lading is dated July 1st, the draft will be due on 1st August.
xxii	The invoices shows price as CIP, it means that the seller is not liable to pay insurance charges during the carriage. The relevant insurance must be arranged by the buyer.
xxiii	In case of “Performance Guarantee” the bank is liable to make payment to the beneficiary to the extent of amount stated in the guarantee in the event of nonperformance by the principal and hence not very risky.
xxiv	A non-resident Pakistani national can open a foreign currency joint account with a resident Pakistani national.
xxv	If the domestic currency is expected to be devalued, the importers will lead and exporters will lag to cover their respective positions.

Q.3     Please give appropriate comments considering the following situations. If any article of
          UCP 500 is applicable to the relevant situation also mention applicable article. The
          answers must be brief and to the point.                                                                          (15)

i	The due date of a bill negotiated by the negotiating bank falls on a public holiday in the country of issuing bank. The bill is now payable on the next working day, or succeeding working day.
ii	An authorized transferring bank is under obligation to transfer a credit so designated.
iii	The issuing bank’s name is not on the approved list of banks provided by the negotiating bank’s controlling office, whereas the documentary credit is freely negotiable with any bank. The negotiating bank can discount the documents under UCP 500.
iv	A draft must be presented whether or not it is stipulated under the terms of the letter of credit.
v	What is the meaning of negotiation under UCP 500?
vi	A letter of credit does not state whether it is revocable or irrevocable, it means it is revocable.
vii	When does a letter of credit becomes operative? a. Is it on the date of negotiation? b. Is it on the date of issue? c. Is it on the date of acceptance by the issuing bank?
viii	The Insurance Policy submitted with the documents is in Pak Rupees for 100% invoice value whereas the LC amount is in US Dollars. Customer claims that the documents are in order.
ix	A letter of credit was established by NBP, Karachi and documents therein have been negotiated by NBP, New York. The opening and negotiating bank is the same.
x	The Bill of lading submitted under the letter of credit does not mention numbers issued nor it is marked “original”, the acceptance of such a bill of lading will be in order.
xi	On 1st August the bank remained closed due to local strike. The letter of credit mentions expiry date as 1st August. It will be in order to negotiate documents presented by the exporter on 2nd August.
xii	Documents presented under the letter of credit include Charter Party Bill of Lading. The documents are treated to be in order.
xiii	Who has the authority to publish Daily Exchange Rates for use in banking transactions?
xiv	Why a bank would prefer a square exchange position as against long or short position?
xv	What is the most important source through which State Bank of Pakistan monitors foreign exchange transactions handled by Authorized Dealers?

Q.4 Pakistan’s trade deficit has widened to 88 per cent during the fiscal year 2005-2006, please comment. Also discuss the various measures announced under the current Trade Policy and by State Bank of Pakistan in the recent past to meet this challenge. (10)

Q.5 What is the remitting bank’s liability regarding examination of documents handled under documentary collection as laid down under URC 522 and how it is practiced? (10)

Q.6 How a letter of credit differs which is available by sight payment from one available by negotiation? Discuss briefly. (10)

Q.7 You have received documents duly negotiated for US Dollars 100,000 on 15th August 06 under a letter of credit established by your Bank. The importer immediately authorized you to debit his foreign currency account maintained with yourselves in equivalent Japanese Yen. The JPY is presently quoted in New York market as under:

JPY 102/03

Please compute the dollar equivalent that will be debited to the importer’s account assuming that as per bank’s policy you require an exchange margin of 0.25%.

Simultaneously you sold these Yen in New York market at the above mentioned quoted rates. How much exchange profit you have earned in terms of US Dollars? (10)

Q.8 You have bought a put option of USD 100,000 Treasury bond futures contract with an exercise price of 95 and the price of the Treasury bond is 120 at expiration, is the contract in the money, out of the money or at the money? What is your profit or loss on the contract if the premium was $ 4,000. (10)