Contents. Recommended reading. Chapter-heads CHAPTER 1.1 CHAPTER 1.2 MACRO PERSPECTIVE PAGE THEORIES OF INTERNATIONAL TRADE

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1 Contents Foreword Recommended reading Syllabus Chapter-heads iii v vii ix CHAPTER 1.1 SECTION 1 MACRO PERSPECTIVE THEORIES OF INTERNATIONAL TRADE u International trade 3 u International trade theory 3 u Conclusion - Limits of international trade theory 6 CHAPTER 1.2 INTERNATIONAL TRADE POLICY FRAMEWORK u World trade Organization 7 u Regional trade blocks 8 u Potential negative effects of regional trade agreements 9 u Major regional trading blocks 10 u Mercosur 13 xi

2 CHAPTER 1.3 INTERNATIONAL CHAMBER OF COMMERCE u The ICC S origins 15 u Practical services to business 15 u Importance of ICC for banks 16 u Section 1 - Self-review 18 CHAPTER 2.1 COMPONENTS OF TRADE SECTION 2 TRADE TRANSACTIONS u Key factors in trade 21 u Risks in international transactions 22 u Incoterms 24 u Incoterms outlined 25 u Invisible trade transactions 29 u Countertrade 30 u Merchanting trade 30 u High-seas sale 32 CHAPTER 2.2 MODES OF INTERNATIONAL TRADE u Clean payments 33 u Bills for collection 34 u Documentary credit 34 CHAPTER 2.3 CLEAN PAYMENT TRANSACTIONS u Introduction 36 u How it works 36 xii

3 CHAPTER 2.4 DOCUMENTARY COLLECTIONS u Introduction 39 u How it works 39 u Role of various parties 40 CHAPTER 2.5 DOCUMENTARY CREDIT u Introduction 47 u Parties to letters of credit 48 u Inter-bank communication 49 u Fees and reimbursements 59 u Risks associated with opening import LCS 60 u Isbp 65 u Fedai guidelines 66 CHAPTER 2.6 IMPORTANT TRADE DOCUMENTS u Documents 68 u Air waybill 69 u Bill of lading (B/L) 69 u Certificate of origin 71 u Combined transport document 72 u Commercial invoice 72 u Draft (or bill of exchange) 73 u Packing list/specification 75 u Section 2 - Self-review 76 xiii

4 CHAPTER 3.1 SECTION 3 TRADE FINANCE IMPORTANCE OF TRADE FINANCE u Term financing for foreign buyers 81 u Export trade finance 82 u Import trade finance 82 CHAPTER 3.2 PRE-SHIPMENT TRADE FINANCE u Types of pre-shipment finance 83 u Requirements for getting packing credit 84 u Eligibility 85 u Quantum of finance 85 u Different stages of pre-shipment finance 85 u Special cases 88 u Period of credit 90 CHAPTER 3.3 POST-SHIPMENT TRADE FINANCE u Features 93 u Financing for various types of exports 95 u Types of post-shipment finance 96 u Crystallization of overdue export bills 98 u Options for the exporter 99 CHAPTER 3.4 FORFAITING AND FACTORING u Brief history 101 xiv

5 u Documentary requirement 104 u Fee type description 105 u Factoring 106 u Fee type description 110 u Bill discounting vs. factoring 110 CHAPTER 3.5 BANK GUARANTEES u Direct/indirect guarantee 112 u Direct guarantee 112 u Indirect guarantee 113 u Claim (guarantee utilization) 115 u Uniform Rules for Demand Guarantees (URDG) 117 u URDG u Similarities with the guarantee 120 u Area of application 120 u Purpose 120 u Special features 121 u Co-acceptance of bills 121 u Benefits to customer 121 u Benefits to bank 122 u Process flow 122 CHAPTER 3.6 DOMESTIC TRADE FINANCE contents u Channel financing 124 u Vendor financing 125 u Section 3 - Self-review 127 xv

6 SECTION 4 RISK MANAGEMENT CHAPTER 4.1 RISK ELEMENTS 131 CHAPTER 4.2 TRANSPORT RISK u Transport insurance 134 u Scope of coverage 134 u Specialist covers 135 u Seller s/buyer s contingent interest insurance 135 u Loss of profits/consequential loss insurance 135 u Charterer s liability insurance 136 CHAPTER 4.3 CONTRACT AND CREDIT RISK u Credit risk management 137 CHAPTER 4.4 COUNTRY AND POLITICAL RISK u Pre-delivery risks 144 u Pre-delivery cover 144 u Binding contracts cover and non-cancellable limits 145 CHAPTER 4.5 CURRENCY RISK u Currency hedging 146 u Tender to contract risks 147 xvi

7 u Forward rate vs. spot rate 148 u RBI reference rate 148 u Inter-bank rate 148 u T.T. rate 149 u TC rates 149 u Buying and selling 151 u Speculation 156 u Calculating the forward rate 156 CHAPTER 4.6 WHEN THINGS GO WRONG u Watch out list 159 u Late payment 159 u Rescheduling 160 u Loss 160 u Dishonoring 161 u Political contract frustration 161 u Section 4 - Self-review 163 CHAPTER 4.7 MARITIME FRAUDS contents u Introduction 164 u Definition of maritime fraud 165 u Different types of maritime fraud 165 u Modus operandi 167 u Preventive measures 168 u Conclusion 173 u Terminal questions 174 xvii

8 CHAPTER 5.1 REGULATORY FRAMEWORK SECTION 5 REGULATORY FRAMEWORK u Director General of Foreign Trade (DGFT) 178 u Reserve Bank of India (RBI) 178 u International Chamber of Commerce (ICC) 178 u Foreign Exchange Dealers Association of India (FEDAI) 179 CHAPTER 5.2 DGFT REGULATIONS u General provisions regarding imports and exports 180 u Incentives to exporters 190 CHAPTER 5.3 FOREIGN TRADE POLICY (Exim policy) u Highlights of exim policy u Miscellaneous 199 Trade facilitation & ease of doing business 199 CHAPTER 5.4 FOREIGN EXCHANGE Management act u Some highlights of Fema 204 u Buyer s/supplier s credit 206 xviii

9 CHAPTER 5.5 ICC - UCPDC GUIDELINES 209 CHAPTER 5.6 FEDAI GUIDELINES u Application of interest 217 u Normal transit period 217 u Merchant trade 218 u Clean instruments 218 u Outward remittances 218 u Guarantees 218 u Section 5 - Self-review 219 CHAPTER 6.1 SECTION 6 FACILITATION BODIES EXPORT-IMPORT BANK OF INDIA u Export-import bank of India 223 The institution 223 The initiatives 223 u Export credits 225 Pre-shipment credit 225 Supplier s credit 225 For project exporters 226 For exporters of consultancy and technological services 226 Guarantee facilities 226 u Finance for export-oriented units 226 Term finance (for exporting companies) 226 Working capital finance (for exporting companies) 227 xix

10 Working capital finance (for non-exporting companies) 227 Term finance (for non-exporting companies) 227 Export finance 227 Equity participation (in Indian exporting companies) 228 Technology and Innovation Enhancement and Infrastructure 228 Development (tieid) for msme sector u Overseas investment finance 228 u Confirmation of letters of credit (l/c) by exim bank under the 228 Global Trade Finance Program (GTFP) of the International Finance Corporation (IFC), Washington dc Introduction 228 Features of the program 229 How it works 229 u Export services 230 u Lines of credit 230 Procedural flow chart 231 Eligible goods 232 General 232 CHAPTER 6.2 contents EXPORT CREDIT GUARANTEE Corporation of India u What is ECGC? 233 u What does ECGC do? 233 u How does ECGC help exporters? 234 u Need for export credit insurance 234 u Credit insurance policies offered to exporters 235 u Credit insurance for banks 236 u Special schemes 236 xx

11 Appendix 1 Important trade terms 237 Appendix 2 Deemed exports 242 Appendix 3 Exim bank s operative lines of credit 245 Appendix 4 Exim bank s pipeline locs Trade finance test xxi