INSTITUTE OF BANKERS IN MALAWI

DIPLOMA IN BANKING EXAMINATION

SUBJECT: INTERNATIONAL TRADE FINANCE (IOBM – D202)

Date: Sunday, 2nd May 2010

Time Allocated: 3 hours (08:00 – 11:00 am)

INSTRUCTIONS TO CANDIDATES

1 This paper consists of TWO Sections, A and B.

2 Section A consists of 4 questions, each question carries 15 marks.

Answer ALL questions.

3 Section B consists of 4 questions, each question carries 20 marks. Answer

ANY TWO questions.

4 You will be allowed 10 minutes to go through the paper before the start of the
examination, you may write on this paper but not in the answer book.

5 Begin each answer on a new page.

6 Please write your examination number on each answer book used.

7 DO NOT open this question paper until instructed to do so.

SECTION A (60 MARKS)

Answer ALL questions from this section.

SECTION A

QUESTION 1

(a) You have received an Export or Inward Letter of Credit issued by a non rated
100% locally owned Zimbabwean bank, requesting you to confirm the LC on
behalf of your highly rated exporting Corporate Customer, M’bwemba Ltd.

Discuss the risk areas that your Bank as a confirming bank will consider as you
make the decision to confirm the LC. (12 marks)

(b) Complete the following by filling in the blank spaces.

URC 525 Article 15 The presenting bank is responsible for seeing that the
form of the acceptance of a bill of exchange appears to be complete and
correct, but it is not responsible for the genuineness of any ……………. or for
the …………..of any signatory to sign the acceptance, Promissory notes,
receipts and other similar instruments. ( 2 marks)

URC 525 Article 19 Banks have no obligation to take any …………….in

respect of the goods to which a documentary collection relates. (1
mark)

(Total 15 marks)

QUESTION 2

(a) What four scenarios could cause Malawi Customs Departments to refuse to
clear imported goods? (4 marks)

(b) What are the three examples of risks an importer using advance payment
method face? (3 marks)

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(c) After your Customer Xei-Feng Company exports his goods to Italy on a
Documentary Collection under Delivery against acceptance (D/A), he gets a
notice from the buyer in Italy that they will not take up the documents that the
presenting Bank is asking them to accept. Explain three areas where your
exporting customer, Xei-Feng Company could suffer direct increase in cost.
(6 marks)

(d) Mention two specific INCOTERMS where an exporter is obliged to arrange

insurance on goods he exports for the benefit of the buyer. (2 marks)

(Total 15 marks)

QUESTION 3

(a) Mention four scenarios that would cause rise to the use of advance payments
between a buyer and a seller. (4 marks)

(b) Your customer, Matabwa Furniture informs you that they are venturing into
importation of treated wood for their new furniture product range. Due to the
new relationship with the supplier in China, he has to establish a Documentary
Credit. He seeks your advice on what documentation he must call for in a
Documentary Credit where the supplier will use both land transport and sea
transport and the Incoterm used will be CIP.

Describe four types of documents that Matabwa Furniture has to call for in the
LC in order for their interest to be well protected. (8 marks)

(c) Given that an invoice shows US$ 100 000 as costs of goods, US$ 1300 as
insurance and US$ 5000 as freight charges. Calculate what should be the
insured value on an insurance certificate allowing for 10% above invoice value
if the incoterm is CIF. (3 marks)

(Total 15 marks)

QUESTION 4

(a) On a documentary collection issued under delivery against acceptance (D/A),

explain two reasons why the mere acceptance of the bill of exchange by the
importer is not a guarantee that payment will be made at the expiry of the tenor/
usance mentioned. (2 marks)

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(b) Define the term transferable documentary credit. Include when it is used and
how it becomes operative. (5 marks)

(c) In a revolving documentary credit, the LC is automatically renewed and

reinstated without the need for amendments. Your customer approached you
that their shipment schedule for goods they imported is as below:

Month Amount
January 2010 10 000
March 2010 10 000
May 2010 10 000
July 2010 10 000
September 2010 10 000
November 2010 10 000

(i) How much will the documentary credit be issued for and why? (2
marks)

(ii) Assuming the customer is using a loan or overdraft facility what is the
total liability / exposure incurred by your bank on the date of issuance of
the Letter of Credit and why? (2 marks)

(iii) Explain what is meant by Cumulative and Non cumulative in a Revolving

L/C. (4 marks)

(Total 15 marks)

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SECTION B (40 MARKS)

Answer ANY TWO questions from this section.

QUESTION 5

It has been said that in a documentary collection, banks act as post office, just to
facilitate the safe receipt of documents by importer and the reciprocal receipt of
payment by the exporter.
Substantiate the statement above by drawing a diagram of the modus operandi and
identifying and defining the roles of the parties, and providing the sequence of steps in
the process from the point of contract of sale between importer and exporter up to the
final point of payment receipt by the exporter. (20 marks)

(Total 20 marks)

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QUESTION 6

Refer the proforma invoice above and use it to fill out the extract of the SWIFT MT
700 form below.

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Swift Meaning Answer
code
50 Applicant
59 Beneficary
31C Date of issue
31D Date and place of expiry
32B Currency code amount
39A Percentage credit amount
tolerance
39B Maximum credit amount

39C Additional Amounts

covered
40A Form of documentary
credit
40E Applicable rules
(*)
41D Available with...   by...
42P Deferred payment details
43P Partial shipments
43T Transhipments
44A Shipment

44E

44F

44B
44C Latest date of shipment

(Total 20 marks)

QUESTION 7

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(a) Metion three types of foreign exchange positions that could emerge during the
course of a trading day, mention them. (3 marks)

(b) Discuss how banks facilitate the collection of foreign exchange proceeds for
exports. (5 marks)

(c) Under what circumstance can authorized dealer banks approve the remittance
of profits or dividends to a foreign based company? (2 marks)

(d) Mention three ways in which banks facilitate cross border investment for
Malawian companies investing abroad? (3 marks)

(e) In terms of the Exchange Control Act, 1984 and the Exchange Control (Forex
Bureau and Foreign Exchange Fixing Sessions) Regulations, 1994, the
authorities removed controls on some matters. Mention five areas where
exchange controls were removed. (5 marks)

(f) What two qualities does a bill of lading have which are similar to a cash
cheque? (2 marks)

(Total 20 marks)

QUESTION 8

(a) On a documentary credit, the description of goods is very important and must
always match with what is shown on a proforma invoice. Explain five potential
danger in the following;

Proforma invoice goods description

10 TATA 2004 Model Engine 4.5 trucks @ 1000 each

LC goods description
10 trucks

Note that : Part shipments are allowed in this transaction. (10 marks)

(b) What four categories does the eUCP 600 cover? (4 marks)

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(c) Provide four areas of competitive edge that a Malawian exporter must have in
order to compete with another exporter in Zambia, both producing cooking oil
for exports to one buyer in England. (4 marks)

(d) Mention two reasons why foreign finance may be preferable in comparison to
local finance? (2 marks)

(Total 20 marks)

END OF THE EXAMINATION PAPER

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