Subject: INTERNATIONAL TRADE FINANCE

Search 500 + past questions and counting.

[searchandfilter slug="question-bank-archive-pages"]

ITF – OCT 2022 – L3 – Q8 – Remedies to Fraud in International Contracts

State five remedies to fraud in international contracts based on a copper blister fraud case.

Question

During the summer of 2020, Geneva-based Mercuria Energy Group said it had been the victim of cargo fraud following its purchase of 10,000 tons of copper blister. When the cargoes started arriving in China, it found containers full of painted stones instead. The bizarre case happened despite security and inspection controls. About 6,000 tons were loaded for shipment in more than 300 containers on eight vessels. But before its journey from a port near Istanbul, the copper was switched with paving stones, spray-painted to resemble the semi-refined metal. Once the vessels were at sea, Mercuria paid $36m over five installments. The fraud wasn’t discovered until the ships began arriving in the Chinese port of Lianyungang. Mercuria, one of the five-biggest energy traders in the world, is seeking redress in Turkish and UK courts against the copper supplier, Bietsan Bakir. Turkish police have taken a number of people into custody in relation to the fake copper scheme. “Suspects have been taken under custody who are thought to be involved in the various parts of this organised crime against Mercuria,” the company said in a statement while thanking the Istanbul Financial Crimes Department.

Note: All parties in all commercial transactions should be aware of the potential for fraud. In some cases, those parties you negotiate with may not even be aware of the liability they pose. The above fraud case gained global attention through social media on March 9, 2021.

REQUIRED

State five (5) remedies to fraud in international contracts.

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: Cargo Fraud, Documentary Verification, Fraud Remedies, Inspection, International Contracts
Level: Level 3

ITF – OCT 2022 – L3 – Q7 – Role of Banks in International Trade

List the roles of banks in international trade in bullet points for SMEs under AfCFTA.

Question

The African Continental Free Trade Area (AfCFTA) is organizing training programs to grow the Small and Medium-sized Enterprises (SMEs) and most importantly to deepen their understanding on international trade and how they can take advantage of the banking system for efficient operation and expansion of their businesses. As Head of Trade Finance of your bank, you have been engaged as a resource person by (AfCFTA) to take Chief Operating Officers of these SMEs on the following topic: “The Role of Banks in International Trade”

REQUIRED:

List these roles (in bullet points only) under the various roles for one mark each.

Note: Long and detailed descriptions are not required.

[Total marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: AfCFTA, Banks Role, Financing, International trade, Payment Services, Risk Management, SMEs
Level: Level 3

Topic: Banking services available from banks and other sources abroad
Series: OCT 2022

ITF – OCT 2022 – L3 – Q6 – Issuing Bank’s Undertaking under UCP 600 Article 7

State the issuing bank's undertaking as per UCP 600 Article 7 a (i-v), b, and c.

Question

State the “Issuing Bank’s Undertaking” as enshrined in Article 7 a (i – v), b and c when it issues a credit on behalf of its customer under the current International Chamber of Commerce (ICC) Publication in respect of Uniform Customs and Practice for Documentary Credit – UCP 600.

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: Article 7, documentary credit, Honour, Issuing Bank Undertaking, Reimbursement, UCP 600
Level: Level 3

ITF – OCT 2022 – L3 – Q5 – D/A Collections and Buyer Protection

Explain D/A terms, expected instructions on collection order, address suggestion on refusing non-spec goods, and ways for drawee protection in D/A collections.

Question

Mr. Bob Ferguson, senior director of your customer, Adelaide Ltd is negotiating for the first time with suppliers abroad to purchase some outwear garments, which are at present unobtainable in the UK. The terms of payment which the sellers have suggested are a 90 days’ sight draft D/A with presentation through a UK bank. You understand that the presentation will be subject to Uniform Rules for Collections (and the shipping terms are to be CFR UK port). Your customer believes that he will have the opportunity of examining the goods when they are received in the UK and that, if they are not in accordance with specification, he can refuse the goods and will not be liable to pay the sellers, since all charges will be against the goods.

Required

a) Write brief notes on the terms of payment mentioned above; [4 marks]

b) Indicate the instructions you would expect to see on the collection order; [8 marks]

c) What would say to the suggestion by Mr. Bob Ferguson that, if goods were not in accordance with specification, the company could refuse to take up and pay for them? [6 marks]

d) How can the drawee obtain a measure of protection with D/A collections? [2 marks] [Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bill of Exchange, Buyer Protection, CFR Terms, Collection Order, Documents Against Acceptance, Specification Compliance
Level: Level 3

Topic: Uniform Rules for Collections
Series: OCT 2022

ITF – OCT 2022 – L3 – Q4 – Back-to-Back Credits for Import Financing and Cash Flow

Describe back-to-back credits to protect the customer and assist cash flow, assess appropriateness for German supplier in Euros, and suggest a compromise for compliance.

Question

Builders Merchants Ltd, customers of your bank, supply the building construction industry with a wide range of building materials and products. Their Financial Director, Mr. Kwame Annoh, calls to see you to discuss a CIF contract, which has been signed, to supply a range of fittings and building materials to an overseas buyer. During the conversation you discover that all the goods will be bought from overseas and that all the suppliers are insisting upon secured methods of payment. The Financial Director asks you to suggest a method by which his company can be fully protected, since cash flow considerations are causing some concerns at the present time. The overseas CIF contract is expressed in sterling but one supplier based in Germany, is insisting upon being paid in Euros.

Required

a) A brief description of basic instrument which would be appropriate in answering the needs of the Builders Merchants Ltd. Indicate why your suggestion will cater for your customer by assisting them to overcome their cash flow difficulties and why it will also give some comfort to their potential suppliers. [12 marks]

b) State briefly whether the method described by you in (a) is or is not, appropriate to the contract with the German supplier. Give reasons for your answer. [2 marks]

c) A compromise that you would consider arranging for Builders Merchants Ltd. which would assist them in complying with the request of the German supplier, bearing in mind that the German company requires security of payment.

[6 marks] [Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: Back-to-Back Credits, Cash Flow Management, Multi-Currency Contracts, Secured Payment, Supplier Security
Level: Level 3

Topic: The main types of documentary letters of credit
Series: OCT 2022

ITF – OCT 2022 – L3 – Q3 – Hedging Export Proceeds with Forward Contracts and Extension

Calculate foreign currency amounts from export contracts, applicable forward rates, GHS credited from received currencies, and close out/extend the New Zealand transaction to show total GHS received.

Question

Agribusiness Plc. is a large corporate in the commodity industry specializing in mango production around Somanya and Afram Plains. After surviving the Covid-19 pandemic, which nearly collapsed the company, Agribusiness is on its feet firmly and now leading the export of fresh mangoes in the West African sub-region. Taking advantage of the African Continental Free Trade

Area (AfCFTA), the company is now looking beyond its European buyers to meet the demand needs of other African countries.

Last week, the Chief Executive Officer and the Chief Operating Officer invited you to their warehouse to discuss their export contracts with you. Both you and your customers were very happy because this transaction will enable them to start paying off the loan facilities your bank has extended to them. These four contracts are for the export of 20 tons of fresh mangoes to

Switzerland, New Zealand, Zambia and Botswana in the ratios of 0.35; 0.30; 0.15 and 0.20 respectively. One month after the meeting at the warehouse, Agribusiness engaged Sintim Freight Forwarders to handle the export orders to the buyers. Goods were eventually shipped and related documents submitted through your counters for payments which were expected in exactly one month’s time in Ghana Cedi for your customer’s account. On 1st September, the company entered into one-month forward exchange contract with your bank to hedge their eventual expected proceeds.

Price per ton at CIF values to their respective destinations are:

Switzerland New Zealand Zambia Botswana
CHF 3, 410 NZD 5, 783 ZMW 58, 765 BWP 44, 970

September 1st rates quoted by your bank are as follows:

Spot Rates One Month Forward

CHF/GHS 8.2350 – 8.2365 0.047 – 0.053 Cedis dis.

NZD/GHS 4.8610 – 4.8625 0.023 – 0.032 Cedis dis.

USD/GHS 7.8530 – 7.8545 0.032 – 0.040 Cedis dis.

GHS/ZMW 2.1000 – 2.1015 0.025 – 0.035 Kwa. dis.

GHS/BWP 1.5715 – 1.5725 0.040 – 0.053 Pula. dis.

October 1st Spot Rate One Month Forward

USD/GHS 7.8450 – 7.8465 0.35 – 0.45 Cedis dis.

NZD/GHS 4.8590 – 4.8610 0.018 – 0.022 Cedis dis

All the expected export proceeds were received by your bank on due date except the one from New Zealand where the buyer could not clear the goods due to problems at Port Nicholson, Wellington. Agribusiness has accordingly extended the forward contract by one month with your bank.

REQUIRED

a. Calculate the amount of foreign currency from each buyer. [4 marks]

b. Calculate the applicable forward rates. [8 marks]

c. Calculate the amount credited to your customer’s GHS account from the foreign currencies received on their behalf. [4 marks]

d. Close out and extend the New Zealand transaction and show the total GHS your customer received under the four export contracts. [4 marks]

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: AfCFTA, Close Out and Extension, export proceeds, Forward Exchange Contracts, Hedging, Multi-Currency Calculations
Level: Level 3

Topic: Trade promotion services
Series: OCT 2022

ITF – OCT 2022 – L3 – Q2 – Forward Cover for Documentary Credit Receivables in JPY to EUR

Calculate the Euro amounts received by the beneficiary on presentation dates after arranging forward cover for JPY receivables under a documentary credit, including close outs for differences in actual shipments.

Question

Farm Technologies Ltd is an agrochemical company in Tokyo, Japan dealing in wholesale distribution. The company has entered into a contract to import agricultural chemical products from Bayer AG in Leverkusen, Germany. The suppliers have insisted on the use of documentary credit which has been agreed by Farm Technologies Ltd. Some of the major terms under this credit are as follows:

• In favour of : Bayer AG, Leverkusen.

• For the account of : Farm Technologies Ltd, Tokyo

• Expiring : November 25

• Amount :About JPY12,900,000

• Covering : About 600 metric tons of agrochemicals to be shipped in

two approximately equal installments, one during the first half of July and one during the first

half of August

• Price : JPY21, 500 per metric ton CIF Tokyo.

Drawings under the credit will be as follows:

• 95% of the value of a provisional invoice upon presentation of documents strictly in order.

The remaining 5% will be available against final invoice accompanied by an independent weight and analysis certificate showing the final weight and chemical analysis.

On 25 May the beneficiary asks you to cover their receivables forward in the foreign exchange market as follows:

i. Arrange forward cover immediately in respect of each of the value of 300 metric tons shipment.

ii. Upon presentation of documents, close out any differences between the forward contract amounts and the actual values claimed.

iii. Ignore forward cover for the balance to be claimed in October.

The documents were presented in order on the following dates:

15 July: Documents showing shipment of exactly 294 metric tons

10 August: Documents showing shipment of exactly 315.79 metric tons

31 October: Final invoice claiming an agreed figure of JPY48, 950. This figure represents the

net settlement of the remaining 5%.

You were asked in early May to confirm this irrevocable documentary credit on behalf of a Japanese correspondent bank.

REQUIRED

Using the following rates of exchange between Euro and JPY displayed by Commerzbank, Frankfurt, where you work at the Trade Finance Department, calculate the Euro sums Bayer AG will receive on the appropriate presentation dates.

25 May Spot 134.95 135.45

1 month forward 1.30 yen 1.15 yen premium

2 months forward 2.15 yen 1.95 yen premium

3 months forward 2.50 yen 2.30 yen premium

6 months forward 4.75 yen 4.65 yen premium

15 July Spot 130.00 132.00

10 August Spot 140.50 142.25

31 October Spot 133.80 135.25

Note:

For the purpose of this question, Commerzbank and the beneficiary assume that shipments and presentation of documents will be made on the same day.

Ignore letter of credit charges as these are for buyer’s account.
Ignore any close out of figures of less than 100 yen.

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: Close Out, documentary credit, Forward Exchange Cover, JPY to EUR Conversion, Provisional Invoice, Shipment Installments
Level: Level 3

ITF – OCT 2022 – L3 – Q1 – Financing Export Transaction with Bill of Exchange and FX Risk Protection

Advise on methods to protect from FX risks for an export to South Africa using bill of exchange, outline contractual obligations, calculate proceeds and cedis from forward and currency borrowing, and formula to compare borrowing costs.

Question

Your customer, Adonteng Traders Limited has finished all the registration formalities to take advantage under the new continental trading booming in Africa. Specializing in export of food throughout the continent, Adonteng Traders have negotiated with South African buyers for supply of assorted foodstuff. The arrangement allows them to draw bill of exchange on buyers immediately after shipment for full payment after 90 days. Because of restricted profit margins over the past few months due to the Russian-Ukraine problem, and a shortage of working capital, the customers called to see you on 30 March to seek your advice on how best they can finance this transaction worth USD250, 000 falling due on 30 June. The credibility of the South African buyers is highly undoubted. Adonteng Traders are seeking funding from your bank for three months in either Ghana Cedi equivalent or USD250, 000 and would pay off when final proceeds are due from the buyers. Additional information available on 30 March is as follows:

(i) USD/GHS

Spot 7.7120 7.7160

1 month forward 0.035 0.043 Cedis disc

2 months forward 0.051 0.063 Cedis disc

3 months forward 0.060 0.065 Cedis disc

(ii) Base rate is 19.0%

(iii) US 3 month LIBOR rate is 5.25%

(iv) Adonteng Traders is borrowing dollars from your US correspondent bank at 1.5% over US LIBOR rate.

(v) For interest on USD borrowing, kindly use mid-rate to convert.

(vi) Your customers do not purchase goods for which they have to pay in foreign currency.

REQUIRED:

(a) By what methods can your customers be protected from foreign exchange risks whilst preserving their profit margins? [2 marks]

(b) Outline any contractual obligations in respect of foreign exchange that your customers would have to undertake. [2 marks]

(a) above, and the cedis proceeds which each method would produce, stating which of the two options is better for Adonteng Traders. [10 marks]

(d) Set out a formula which your customers would use to compare cedis and foreign

currency borrowing costs, taking into account, where appropriate, the advantages or disadvantages of forward cover. [6 marks]

Notes: (2) Base your calculations on a 30 day month and a 360 day year.

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: AfCFTA, Bill of Exchange, Currency Borrowing, Export Financing, Foreign Exchange Risk, Forward Contracts, Interest Calculations, Profit Margins
Level: Level 3

Topic: The meaning of International Trade Finance/Payment and Risk Management Services
Series: OCT 2022

ITF – APR 2023 – L3 – Q8 – Non-Financial Non-Transport Documents in Trade

Briefly explain ten documents important in international trade that are neither financial nor transport in nature.

Question

Documents are very important in international trade as they control the movements of goods and in some cases give legal titles to true owners. Briefly explain ten documents which are neither financial nor transport in nature but which nonetheless, are equally important in international trade. [2 marks each]

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: Certificates, Commercial Documents, Trade Compliance
Level: Level 3

Topic: International Trade
Series: APR 2023

ITF – APR 2023 – L3 – Q7 – Fraudulent Remittance Prevention

Explain in 10 bullet points how to prevent a fraudulent remittance scenario involving a SWIFT MT910 message.

Question

You are in charge of the Foreign Remittances Department of your bank. About a week ago, a certain man came to your office to enquire whether you have received any remittance on his behalf. When asked how much he was expecting he said the amount was USD 23, 745.00 from his brother in America, to which you replied in the negative. He had a few discussion with with you, gave you his name as well as cell phone number and left.

Three days after, you received a SWIFT message MT9 10 (confirmation of credit advice) with an amount of USD 23, 745.00 (from Citbank N.A. so you called him. He gave his account details of your bank’s branch at Somanya. Upon this you gave instruction for payment to be processed into his current account in local currency. Customer withdrew the funds as soon as it hit the account explaining to the branch manager that it was for a building project and had to quickly buy the building material before prices escalate. A week later, you returned from a meeting at Head Office to find a SWIFT message on your desk from Citbank N.A requesting for immediate return of the paid out USD 23.745 received under MT9 10 as it has been confirmed by the FBI as a fraudulent transaction. In fact, Citbank is urgently demanding authorization message from your bank to debit its Nostro account in settlement.

Required:

Explain what you could have done to prevent this from happening to your bank. Your answer should be a ten (10) bullet point format.

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: Bank Procedures, Fraud Detection, Preventive Measures, SWIFT MT910
Level: Level 3

Topic: SWIFT Messages
Series: APR 2023

ITF – APR 2024 – L3 – Q8 – Post-Shipment Finance Products

Explain four post-shipment finance products: export bill negotiation, discounting, advance against banker's acceptance, and advance against export bill for collection.

Question

Post-Shipment Finance refers to an Advance or Loan extended to the exporter on the strength of documentation after goods have been shipped to the importer. It is more popular in Cross Border Trade transactions. This facility is extended to the exporter either on with or without recourse basis and is also applicable to both Documentary Credit and Non-Documentary Credit transactions.

REQUIRED With the above in view, explain very briefly, the following Post-Shipment Finance Products:

a. Export Bill Negotiation [5 Marks]

b. Export Bill Discounted [5 Marks]

c. Advance against Banker’s Acceptance [5 Marks]

d. Advance against an Export Bill sent for Collection [5 Marks] [Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Topic: Finance against ECGD schemes
Series: APR 2024

ITF – APR 2024 – L3 – Q7 – Correspondent Banking and Payment Concerns]

Define correspondent banking, list ten services with JP Morgan Chase, and explain concerns with nostro balance, value date, account details, and cut-off time for a USD payment.

Question

a. Your bank’s main US Dollar Correspondent Bank is JP Morgan Chase, New York.

i. Briefly define Correspondent Banking. [2 Marks]

ii. List ten (10) services that take place between your bank and JP Morgan Chase in this relationship. [10 Marks]

b. A Cocoa Farmer from Duyaw Nkwanta calls at your bank and offered to pay his son’s University fees of USD15, 000.00 to Santa Rosa University in California, USA. In making this payment today through your account with JP Morgan Chase, why would you be concerned with the following:

i) Balance on the Nostro Account [2 Marks]

ii) Value Date [2 Marks]

iii) Account Details of Santa Rosa University [2 Marks]

iv) Cut-Off Time [2 Marks] [Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: account details, correspondent banking, cut-off time, nostro account, Services, value date
Level: Level 3

Topic: Payment and collection services from correspondent banks abroad
Series: APR 2024

ITF – APR 2024 – L3 – Q6 – Assistance for Clearing Imported Equipment without Bill of Lading

Explain how the bank can assist in clearing imported equipment from the port when bills of lading are missing and the precautions to take.

Question

Sam Cheff Mining Ltd is your customer dealing in Mineral Prospecting in the Northern Region of Ghana. The company’s team of engineers has identified a particular site along the TamaleBolgatanga Highway which they believe could have huge deposit of Gold. When the feasibility and sample details of Analysis Reports were submitted to the Board of Directors, they quickly took a decision to allow the company to import a state-of-the-art equipment to enable full scale drilling start as soon as possible.

The Managing Director called on you today to discuss issues affecting the company’s business. He tells you that the equipment imported has arrived but is still at the Tema Harbour, unable to be cleared because the Bills of Lading involved have gone missing. As a result, the equipment has started incurring demurrage charges at the port, while at the same time, the company is incurring unnecessary labour cost due to idle time, as the workers are waiting for these machines to work with.

The Managing Director is visibly worried as he sits at the oval desk in your office, wondering what could be done to protect the company from these costs.

REQUIRED

Explain how the bank can help Sam Cheff Mining Ltd to clear the equipment from the port and the precautions the bank should take. [20 Marks]

Answer

Find Related Questions by Tags, levels, etc.

Tags: demurrage, Indemnity, missing bill of lading, port clearance, precautions, shipping guarantee
Level: Level 3

Topic: Risk inherent in granting periods of credit
Series: APR 2024

ITF – APR 2024 – L3 – Q5 – Implications of Documentary Credit for Importer

Define documentary credit under UCP 600, its implication for the importer, risks to parties, required documents, and precautions for receiving correct goods

Question

Your customers, Roofing Technologies (RT), located at Tema Industrial Area, are specialist manufacturers of roofing sheets. The company is finding it difficult to obtain supply of raw materials as their main Ukraine Suppliers have completely shut down due to the war with Russia.

The company has now identified a South African supplier, who can meet the raw material needs of RT, but only against Secure Methods of Payment. Goods will be shipped under CIF Terms. Tema Port. In a meeting with the Chief Operating Officer today, you have been asked to establish an Irrevocable Letter of Credit in favour of the South African suppliers. Your customers advised you during the meeting that they do not understand the implications of this Secure Method of Payment to the new suppliers as they were used to Documents Against Acceptance with their Ukraine Suppliers.

In order to give them proper understanding, you are required to provide answers to the following:

a) Define Documentary Credit under UCP 600. What implication does the definition have on Roofing Technologies? [2 marks each] [4 Marks]

b) Mention two (2) risks each to RT and the beneficiary. [1 mark each] [4 Marks]

c) Mention three (3) documents (excluding Bill of Exchange) which RT should call for. Mention one (1) detail on each document which RT would expect to find if the bank agreed to establish the Letter of Credit. [2 marks each] [6 Marks]

d) Mention three (3) precautions that RT can take to ensure that they receive the right goods, while at the same time satisfying the seller’s needs. [2 marks each] [6 Marks]

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: documentary credit, documents required, precautions for right goods, risks to importer and beneficiary, UCP 600
Level: Level 3

Topic: Uniform Customs and Practice for Documentary Credits UCP 600
Series: APR 2024

ITF – APR 2024 – L3 – Q4 – Foreign Bank Accounts in Local Currency

Describe why foreign banks maintain local currency accounts abroad, how they are funded and operated, list risks, and suggest management steps.

Question

(a) Briefly describe why Foreign Banks maintain Bank Accounts in local currency abroad and how these accounts are funded and operated. [5 Marks]

(b) List the risks to a bank of Assets held in this manner. [5 Marks]

(c) What practical steps should banks employ to manage such Assets effectively? [ 10 Marks

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: Asset Management, foreign bank accounts, Funding, operation, Risks
Level: Level 3

Topic: Regulations to prevent fraud and money laundering
Series: APR 2024

ITF – APR 2024 – L3 – Q3 – Cost Comparison of Steel Quotations from Different Countries

Calculate the cost of 100 tons of steel for three quotations from Norway, Denmark, and Turkey, including exchange, charges, and interest, to determine the cheapest option.

Question

Question: QUESTION 3 Held and Sons are Stockholders in London whose account is operated on Overdraft basis. Hitherto, they have obtained their Stocks in the UK, but they are now forced to look elsewhere for supplies of specialised steel. They have received the following quotations:

Country	Price Per Ton	Payment Terms
a. Norway	NOK 2,125 FOB, Oslo	Open Account: Settlement one month after shipment.
b. Denmark	DKK 1,560 CFR, London	Draft drawn payable two months after shipment (Collection Charges for buyer).
c. Turkey	TRY 2112 CIF, London	Irrevocable Documentary Credit payable three months after shipment.

Using additional information set out below, show by calculating the cost of 100 tons of the steel, which of quotations (a), (b) and (c) would be the cheapest for your customer. Freight charges from any European Port £5 per ton Insurance (to be effected on 110% of CIF value) 1% payable in £ Collection Charges (total for both banks) ¼ % Documentary Credit Charges (including Acceptance Commission) ¾ % Overdraft Interest for one month (considered as 1/12 of a year) 15% pa. Ignore all other possible charges. It is to be assumed that your customers would have covered any Exchange Risk on the day of shipment, in accordance with rates quoted below, and that all payments and charges relative to any particular quotation are debited on the same day.

Spot One Month Two Months Three Months Norway 12.20 – 12.50 10 – 12c disc 15 – 18c disc 20 – 23c disc Denmark 8.90 – 9.10 8 – 5c pm 10 – 8c pm 14 – 11c pm Turkey 11.80 – 12.05 12 – 9c pm 14 – 11c pm 16 – 12c pm

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: CFR, CIF, collection charges, documentary credit, FOB, Forward Rates, freight, Insurance, overdraft interest, steel quotations
Level: Level 3

Topic: Collection of cheques and bills of exchange
Series: APR 2024

ITF – APR 2024 – L3 – Q2 – Option Forward Contracts and Rate Calculations

Define option forward contract and calculate appropriate rates for three scenarios involving option contracts for buying/selling foreign currencies.

Question

(a) What do you understand by Option Forward Contract? [4 marks]

(b) From the following scenarios, calculate the appropriate rate for your customer, by specifically choosing the correct Option Rate applicable in each circumstance:

i. Your customer wishes to take out an Option Contract on 1 March for the period 1 March to 1 April, to buy US $30,000 to pay for goods imported from the USA. Your bank’s rates are as follows: 1 March Spot USD/GHS 11.3450 11.3540 One month forward 0.0520 0.0545 cedis dis. [4 marks]

ii. To manage the risk of its Foreign Exchange, your customer came to arrange for Forward Exchange Contract for export proceeds of NGN 7.8 million due within the next two months. Your customer wishes to take out an Option Contract on 1 March for the period 1 April to 1 May to sell the Foreign Currency to your bank. Your quoted rates are as follows: 1 March Spot GHC/NGN 68.0110 68.0125 One month forward 0.0120 0.0145 naira dis Two months’ forward 0.0165 0.0195 naira dis. [6 marks]

iii. The Import Bill of your customer falls due within the next three months. The customer wishes to take out an Option Contract on 1 March to pay the Swiss Franc 25,000 anytime between 1 May and 1 June. Rates are as follows: 1 March Spot CHF/GHS 12.8215 12.8265 Two months’ forward 0.0865 0.0899 cedis dis Three months’ forward 0.0910 0.0945 cedis dis [6 marks]

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: CHF/GHS, export proceeds, GHC/NGN, import payment, option forward contract, rate calculation, USD/GHS
Level: Level 3

Topic: Protection against exchange risks
Series: APR 2024

ITF – APR 2024 – L3 – Q1 – Funding Options for Advance Payment in Construction Contract

Calculate the costs of two financing options—borrowing in USD or equivalent GHS—for a construction company's advance payment and determine the most favorable from the customer's perspective.

Question

Zakaria Construction Plc. (ZCP) are your customers specialised in the construction of highways. Sometime in February, your customer approached you to discuss their intention to apply for a Bid Bond to participate in an International Competitive Tender by the Ministry of Roads and Highways. The Tender is for the award of a contract to construct the Eastern Corridor Road. After discussions with your bank, the Bid Bond was issued in favour of Ministry of Roads and Highways. On March 1, Mr. Adamu, the Chief Finance Officer of ZCP, called to inform you that the company has successfully won the Tender and had been awarded a contract to construct a portion of the main project. At the meeting, Mr. Adamu showed other documents confirming the award of the contract – which also showed the contract value as USD1.2million. The meeting discussed at length, how the bank could assist ZCP to obtain an Advance Payment Bond in favour of Ministry of Roads and Highways to enable the company access 11.25% initial Mobilization Funding of the contract value.

The following events took place: a. On April 1, the Advance Payment Guarantee was issued and submitted to the Ministry of Roads and Highways. b. The 11.25% Advance Payment Funding is confirmed by Ministry of Roads and Highways and will be received by your bank exactly in three months’ time, on July 1, for customer’s account. c. Also on April 1, the company entered into three months’ Forward Contract to sell the US Dollar proceeds of the 11.25% Advance Payment to your bank on arrival of funds.

ZCP has to acquire materials before main construction works begin in July and so, have requested your bank for immediate funding and have proposed two options as follows: i) To borrow the US Dollar amount of the 11.25% Advance Payment for three months and repay when it is received on July 1 . ii) To borrow Ghana Cedi equivalent of the US Dollar amount for three months and repay from proceeds of the three months Forward Contract.

Rates available for the day are as follows:

	Bid	Offer
April 1, Spot	10.2570	10.2640
One month forward	0.0085 cedis discount	0.0095 cedis discount
Two months’ forward	0.0115 cedis discount	0.0125 cedis discount
Three months’ forward	0.0135 cedis discount	0.0145 cedis discount

You are also given the following additional information: a. Term SOFR (Secured Overnight Financing Rate) which has replaced the LIBOR, is quoted this morning for 3 months US Dollar at 5.1% with your bank’s margin at 4.5%. b. Commitment and Arrangement Fees are charged separately on Dollar borrowing at 1.50% and 0.50% respectively. c. Interest and other charges on US Dollar borrowing should be translated at middle-rate. d. For ZCP, your bank will lend local currency at 2% above its Base Rate of 21.75% p.a. e. Processing Fees for Cedi Facility is 1.0%. f. Cedi Facility also attracts Group Insurance Commission of 1.50%.

REQUIRED Calculate each of the two options and choose the most favorable one from your customer’s point of view, stating your reason.

[Total Marks 20]

Answer

Find Related Questions by Tags, levels, etc.

Tags: advance payment guarantee, bid bond, favorable option, Fees, Forward Contract, GHS borrowing, Interest calculation, USD borrowing
Level: Level 3

Topic: Foreign currency borrowing/deposits
Series: APR 2024

Subject: INTERNATIONAL TRADE FINANCE

ITF – OCT 2022 – L3 – Q8 – Remedies to Fraud in International Contracts

State five remedies to fraud in international contracts based on a copper blister fraud case.

You're reporting an error for "ITF – OCT 2022 – L3 – Q8 – Remedies to Fraud in International Contracts"

ITF – OCT 2022 – L3 – Q7 – Role of Banks in International Trade

List the roles of banks in international trade in bullet points for SMEs under AfCFTA.

You're reporting an error for "ITF – OCT 2022 – L3 – Q7 – Role of Banks in International Trade"

ITF – OCT 2022 – L3 – Q6 – Issuing Bank’s Undertaking under UCP 600 Article 7

State the issuing bank's undertaking as per UCP 600 Article 7 a (i-v), b, and c.

You're reporting an error for "ITF – OCT 2022 – L3 – Q6 – Issuing Bank’s Undertaking under UCP 600 Article 7"

ITF – OCT 2022 – L3 – Q5 – D/A Collections and Buyer Protection

Explain D/A terms, expected instructions on collection order, address suggestion on refusing non-spec goods, and ways for drawee protection in D/A collections.

You're reporting an error for "ITF – OCT 2022 – L3 – Q5 – D/A Collections and Buyer Protection"

ITF – OCT 2022 – L3 – Q4 – Back-to-Back Credits for Import Financing and Cash Flow

Describe back-to-back credits to protect the customer and assist cash flow, assess appropriateness for German supplier in Euros, and suggest a compromise for compliance.

You're reporting an error for "ITF – OCT 2022 – L3 – Q4 – Back-to-Back Credits for Import Financing and Cash Flow"

ITF – OCT 2022 – L3 – Q3 – Hedging Export Proceeds with Forward Contracts and Extension

Calculate foreign currency amounts from export contracts, applicable forward rates, GHS credited from received currencies, and close out/extend the New Zealand transaction to show total GHS received.

You're reporting an error for "ITF – OCT 2022 – L3 – Q3 – Hedging Export Proceeds with Forward Contracts and Extension"

ITF – OCT 2022 – L3 – Q2 – Forward Cover for Documentary Credit Receivables in JPY to EUR

Calculate the Euro amounts received by the beneficiary on presentation dates after arranging forward cover for JPY receivables under a documentary credit, including close outs for differences in actual shipments.

You're reporting an error for "ITF – OCT 2022 – L3 – Q2 – Forward Cover for Documentary Credit Receivables in JPY to EUR"

ITF – OCT 2022 – L3 – Q1 – Financing Export Transaction with Bill of Exchange and FX Risk Protection

Advise on methods to protect from FX risks for an export to South Africa using bill of exchange, outline contractual obligations, calculate proceeds and cedis from forward and currency borrowing, and formula to compare borrowing costs.

You're reporting an error for "ITF – OCT 2022 – L3 – Q1 – Financing Export Transaction with Bill of Exchange and FX Risk Protection"

ITF – APR 2023 – L3 – Q8 – Non-Financial Non-Transport Documents in Trade

Briefly explain ten documents important in international trade that are neither financial nor transport in nature.

You're reporting an error for "ITF – APR 2023 – L3 – Q8 – Non-Financial Non-Transport Documents in Trade"

ITF – APR 2023 – L3 – Q7 – Fraudulent Remittance Prevention

Explain in 10 bullet points how to prevent a fraudulent remittance scenario involving a SWIFT MT910 message.

You're reporting an error for "ITF – APR 2023 – L3 – Q7 – Fraudulent Remittance Prevention"

ITF – APR 2024 – L3 – Q8 – Post-Shipment Finance Products

Explain four post-shipment finance products: export bill negotiation, discounting, advance against banker's acceptance, and advance against export bill for collection.

You're reporting an error for "ITF – APR 2024 – L3 – Q8 – Post-Shipment Finance Products"

ITF – APR 2024 – L3 – Q7 – Correspondent Banking and Payment Concerns]

Define correspondent banking, list ten services with JP Morgan Chase, and explain concerns with nostro balance, value date, account details, and cut-off time for a USD payment.

You're reporting an error for "ITF – APR 2024 – L3 – Q7 – Correspondent Banking and Payment Concerns]"

ITF – APR 2024 – L3 – Q6 – Assistance for Clearing Imported Equipment without Bill of Lading

Explain how the bank can assist in clearing imported equipment from the port when bills of lading are missing and the precautions to take.

You're reporting an error for "ITF – APR 2024 – L3 – Q6 – Assistance for Clearing Imported Equipment without Bill of Lading"

ITF – APR 2024 – L3 – Q5 – Implications of Documentary Credit for Importer

Define documentary credit under UCP 600, its implication for the importer, risks to parties, required documents, and precautions for receiving correct goods

You're reporting an error for "ITF – APR 2024 – L3 – Q5 – Implications of Documentary Credit for Importer"

ITF – APR 2024 – L3 – Q4 – Foreign Bank Accounts in Local Currency

Describe why foreign banks maintain local currency accounts abroad, how they are funded and operated, list risks, and suggest management steps.

You're reporting an error for "ITF – APR 2024 – L3 – Q4 – Foreign Bank Accounts in Local Currency"

ITF – APR 2024 – L3 – Q3 – Cost Comparison of Steel Quotations from Different Countries

Calculate the cost of 100 tons of steel for three quotations from Norway, Denmark, and Turkey, including exchange, charges, and interest, to determine the cheapest option.

You're reporting an error for "ITF – APR 2024 – L3 – Q3 – Cost Comparison of Steel Quotations from Different Countries"

ITF – APR 2024 – L3 – Q2 – Option Forward Contracts and Rate Calculations

Define option forward contract and calculate appropriate rates for three scenarios involving option contracts for buying/selling foreign currencies.

You're reporting an error for "ITF – APR 2024 – L3 – Q2 – Option Forward Contracts and Rate Calculations"

ITF – APR 2024 – L3 – Q1 – Funding Options for Advance Payment in Construction Contract

Calculate the costs of two financing options—borrowing in USD or equivalent GHS—for a construction company's advance payment and determine the most favorable from the customer's perspective.

You're reporting an error for "ITF – APR 2024 – L3 – Q1 – Funding Options for Advance Payment in Construction Contract"

admin

Pick a Form