TFFE 96th Banking Professional Exam: Understanding Terminology
Distinguish between any four of the following:
(a) Distinguish between OD Sight Rate and BC Selling Rate
(1) OD Sight Rate is used for purchasing sight export bills, whereas BC Selling Rate is used for selling foreign currency against import bills.
(2) OD Sight Rate is applied in export transactions, whereas BC Selling Rate is applied in import transactions.
(3) Under OD Sight Rate, the bank buys foreign currency from the exporter, whereas under BC Selling Rate, the bank sells foreign currency to the importer.
(4) OD Sight Rate is a buying rate, whereas BC Selling Rate is a selling rate.
(5) OD Sight Rate is used when the bank purchases export proceeds, whereas BC Selling Rate is used when the importer makes payment to the exporter.
(b) Distinguish between Spot Exchange Rate and Forward Exchange Rate
(1) Spot Exchange Rate is used for immediate settlement, whereas Forward Exchange Rate is used for settlement on a future date.
(2) Under Spot Exchange Rate, settlement is usually made within two working days, whereas under Forward Exchange Rate, settlement is made on the agreed future date.
(3) Spot Exchange Rate is based on the current market rate, whereas Forward Exchange Rate is fixed in advance.
(4) Spot Exchange Rate is suitable for current transactions, whereas Forward Exchange Rate is suitable for future transactions.
(5) Spot Exchange Rate does not require a forward contract, whereas Forward Exchange Rate requires a forward contract.
(c) Distinguish between Nostro Account and Vostro Account
(1) Nostro Account means “Our account with them”, whereas Vostro Account means “Your account with us.”
(2) A Nostro Account is maintained by a local bank with a foreign bank, whereas a Vostro Account is maintained by a foreign bank with a local bank.
(3) A Nostro Account is maintained in foreign currency, whereas a Vostro Account is generally maintained in the local currency.
(4) A Nostro Account is used to make international payments, whereas a Vostro Account is used to receive and settle international payments.
(5) A Nostro Account facilitates foreign trade payments for the local bank, whereas a Vostro Account facilitates banking services for the foreign bank.
(d) Distinguish between LIM and LTR
(1) LIM is a loan against imported goods, whereas LTR is a loan against a Trust Receipt.
(2) Under LIM, the bank keeps possession of the goods, whereas under LTR, the importer receives possession of the goods.
(3) Under LIM, goods are released after repayment, whereas under LTR, payment is made later according to the agreement.
(4) LIM provides greater security to the bank, whereas LTR involves comparatively higher risk.
(5) LIM is generally granted when the importer cannot retire the documents immediately, whereas LTR is granted to reliable importers.
(e) Distinguish between Pre-shipment Finance and Post-import Finance
(1) Pre-shipment Finance is provided before shipment of goods, whereas Post-import Finance is provided after the import of goods.
(2) Pre-shipment Finance is granted to exporters, whereas Post-import Finance is granted to importers.
(3) Pre-shipment Finance helps purchase raw materials and process export goods, whereas Post-import Finance helps retire import bills and clear imported goods.
(4) Packing Credit is a common example of Pre-shipment Finance, whereas PAD, LIM and LTR are common examples of Post-import Finance.
(5) Pre-shipment Finance supports export production, whereas Post-import Finance finances imported goods after their arrival.
(f) Distinguish between Currency Appreciation and Currency Depreciation
(1) In Currency Appreciation, the value of the currency increases, whereas in Currency Depreciation, the value of the currency decreases.
(2) In Currency Appreciation, imports become cheaper, whereas in Currency Depreciation, imports become more expensive.
(3) In Currency Appreciation, exports become relatively less competitive, whereas in Currency Depreciation, exports become relatively more competitive.
(4) In Currency Appreciation, the purchasing power of the currency increases, whereas in Currency Depreciation, the purchasing power decreases.
(5) In Currency Appreciation, less local currency is needed to buy foreign currency, whereas in Currency Depreciation, more local currency is needed to buy foreign currency.
