TFFE 6th Banking Professional Exam: Short Questions
Briefly answer the following questions:
(i) Key criteria of a deemed export.
A deemed export means supplying goods or inputs to an export-oriented industry within Bangladesh. The goods do not physically leave the country. However, the supply is treated as export. The supply is generally made against a foreign-currency-denominated Inland Back-to-Back Letter of Credit (LC). The goods are used for producing exportable goods.
(ii) How to netting off the Net Open Position (NOP) of foreign exchange?
Netting off NOP means reducing a bank’s foreign currency exposure. The bank offsets its long position against its short position. It can do this by matching opposite spot or forward transactions. It can also use swap transactions. Another way is to square up the position in the interbank market.
(iii) Why does LIBOR discontinue?
LIBOR was discontinued because it depended largely on banks’ estimated borrowing costs. It was also vulnerable to manipulation. Regulators therefore decided to replace it with more reliable benchmark rates. These include the Secured Overnight Financing Rate (SOFR), Sterling Overnight Index Average (SONIA) and Tokyo Overnight Average Rate (TONA).
(iv) Define SOFR and EURIBOR.
SOFR stands for Secured Overnight Financing Rate. It is a US dollar benchmark interest rate. It is based on overnight transactions in the US Treasury repo market. EURIBOR stands for Euro Interbank Offered Rate. It is a benchmark interest rate for the euro. It reflects the borrowing costs of banks in the euro money market.
(v) Differentiate crypto currency and digital currency.
Digital currency is a broad form of money that exists in electronic form. Bank deposits and Central Bank Digital Currency (CBDC) are examples of digital currency. Cryptocurrency is a type of digital currency. It uses cryptography and blockchain technology. It is generally not issued or controlled by a central bank.
(vi) Define open account in international trade.
Open Account is a trade payment method. Under this method, the exporter ships the goods first. The importer makes payment later on an agreed date. There is normally no bank payment undertaking. Payment is made through a normal banking channel when it becomes due.
(vii) Key difference of Offshore Banking Unit (OBU) from Domestic Banking Unit (DBU).
An Offshore Banking Unit (OBU) conducts banking business mainly in foreign currency. It mainly serves non-residents and export-oriented businesses. A Domestic Banking Unit (DBU) conducts regular banking business in Bangladesh. It mainly uses Taka and serves resident customers and businesses.
(viii) Explain Net export under merchanting.
Net export under merchanting means the difference between the amount received from selling goods to a third country and the amount paid to purchase those goods from another country. The goods do not physically enter the merchant’s home country. The merchant earns the difference between the purchase price and the selling price. This difference represents the merchant’s export earnings.
(ix) What is Fed Fund Rate?
The Fed Funds Rate is the interest rate at which commercial banks lend their reserve balances to one another overnight in the United States. The lending is generally made on an uncollateralised basis. The US Federal Reserve uses this rate as an important tool of monetary policy. Changes in this rate can influence other interest rates and financial conditions.
(x) Name the IMF currency and its full form.
The IMF’s international reserve asset is called SDR. SDR stands for Special Drawing Rights. It is not a normal currency used for everyday transactions. It is an international reserve asset. It is mainly used in transactions between the International Monetary Fund (IMF) and its member countries.
