TFFE 97th Banking Professional Exam: Short Notes

Write short notes on any five of the following

(a) Back-to-Back Letter of Credit (BTB L/C)

A Back-to-Back Letter of Credit (BTB L/C) is an import LC opened against an export LC. The export LC acts as security for opening the new LC. It is mainly used to import raw materials and accessories needed to produce export goods. The supplier under BTB LC may be local or foreign. After export proceeds are received, the bank adjusts the BTB LC liability. It is widely used by the garment industry in Bangladesh.

(b) NITA Account

NITA stands for Non-Resident Investor’s Taka Account. It is a Taka account opened by a non-resident investor with an Authorized Dealer (AD) bank in Bangladesh. It is mainly used for investment in shares and other securities. Dividends, profits and capital gains can be credited to this account. The balance is freely repatriable abroad. It encourages foreign investment in Bangladesh.

(c) Net Open Position (NOP)

Net Open Position (NOP) is the difference between a bank’s foreign currency assets and foreign currency liabilities. It measures the bank’s exposure to exchange rate risk. If assets are higher than liabilities, it is a long (overbought) position. If liabilities are higher, it is a short (oversold) position. Bangladesh Bank fixes NOP limits to control foreign exchange risk.

(d) Factoring

Factoring is a financing service where a business sells its accounts receivable to a factor at a discount. The factor pays the seller immediately and later collects the money from the buyer. It improves cash flow and reduces collection risk. It is mainly used in domestic and international trade.

(e) Travel Quota

Travel Quota is the foreign exchange that an Authorized Dealer bank may release to a Bangladeshi resident travelling abroad. The amount depends on Bangladesh Bank regulations. The foreign exchange is released after verifying the passport, visa, and air ticket. It helps travellers meet their travel expenses legally.

(f) Wage Earners’ Development Bond (WEDB)

The Wage Earners’ Development Bond is an investment bond issued by the Government of Bangladesh for Non-Resident Bangladeshis (NRBs). It encourages NRBs to send remittances through banking channels. It offers attractive returns and tax benefits. The bond also helps increase the country’s foreign exchange reserves.

(g) SOFR

SOFR stands for Secured Overnight Financing Rate. It is the benchmark interest rate for the US Dollar. It is based on actual overnight repo transactions in the US Treasury market. SOFR replaced USD LIBOR and is now widely used in international loans and trade finance.