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Question Title: [ITF – APR 2023 – L3 – Q1 – Timber International Export Finance Calculation] Level: LEVEL III Professional Bodies: CIBG Programs: ASSOCIATESHIP EXAMINATION Subjects: INTERNATIONAL TRADE FINANCE Topics: International Trade Finance, Export Finance, Letters of Credit, Forward Exchange Contracts, Overdraft Facilities, Interest Calculations Series: APRIL 2023 Total Marks: 20 Question Tags: Export Shipments, Payment Schedules, Receipts Schedules, Overdraft Account, Forward Rates, Interest Calculation, Net Profit Question Short Summary: Calculate net profit for Timber International’s timber exports to Libya, Tunisia, and Saudi Arabia, including schedules for supplier payments and buyer receipts, and the overdraft account with interest. ——————————————————————— Question: Question One

Timber International are global exporters of first class sawn timber. Though they have their large buyers in Europe, they have taken advantage of the AICFTA for further expansion. As your customers, they have come to discuss the finance of contracts to supply “Odum” kiln dried sawn timber to their new buyers in North Africa and the Gulf – Libya, Tunisia and Saudi Arabia. Timber International had agreed with these buyers under confirmed irrevocable letters of credit under the following details:

Shipments: 10 May 40 cubic meters to Libya at Libyan Dinar – LYD 5, 386.50 per cubic meter 14 June 50 cubic meters to Tunisia at Tunisia Dinar – TND 3, 517.50 per cubic meter 8 July 45 cubic meters to Saudi Arabia at Saudi Riyal – SAR 4, 168.50 per cubic meter

Payments: Ten days after shipment date, Timber International will issue a one-month bill of exchange on their new buyers. Proceeds of these drafts will be wired by SWIFT payment platform to your bank on due dates. To minimize risks, the company has completed a one-month forward exchange contracts with your bank on the dates drafts were drawn by Timber International on these buyers.

Timber International decided to buy the processed Odum timber from local suppliers at an agreed price of Euro 832 per cubic meter FOB to any of the three ports of destination Benghazi, Tunis and Jeddah Islamic ports respectively.

It is further agreed that payment to the local suppliers will be made exactly seven days after shipment date and within which period your bank would have already received the necessary export documents from the ultimate suppliers. To meet timely and uninterrupted payment to suppliers, Timber International applied for an overdraft facility in local currency to finance this business. In each case, payment under the credit was made to the local suppliers in euros on the agreed dates as appropriate, and debited to the cedi overdraft account accordingly.

Please note the following additional information:

• Ghana Reference Rate is 33.25% p.a.
• Your bank takes a spread of 2% p.a. on facilities.
• Day basis for overdraft interest calculation is 360 days for a year with each month also taken as 30 days. Kindly round-up all interest calculations amount and post as a single figure after all postings have been made.

Required On the basis of the following additional information, calculate the net profit in Ghana Cedis for your customer, showing: a. Schedule of Payments to Suppliers (3 marks) b. Schedule of Receipts from Buyers (6 marks) c. Overdraft account of your customers showing all postings (11 marks)

Rates for the transactions are detailed below: