TFFE 99th Banking Professional Exam: Short Notes

Write short notes on any five of the following

(a) Asian Clearing Union (ACU)

Asian Clearing Union (ACU) is a regional payment arrangement among the central banks of Bangladesh, India, Pakistan, Sri Lanka, Nepal, Bhutan, Myanmar, Maldives, and Iran. It allows member countries to settle eligible trade payments on a multilateral net basis instead of settling each transaction separately in hard currency like USD. This reduces foreign currency requirements and facilitates regional trade.

(b) Documentary Collection

Documentary Collection is a trade payment method where the exporter sends shipping documents through banks to collect payment from the importer. Banks act only as collecting agents and do not guarantee payment. It may be under Documents against Payment (D/P) or Documents against Acceptance (D/A). It is cheaper than an LC but involves higher payment risk for the exporter.

(c) Receivable Finance

Receivable Finance means obtaining short-term finance against unpaid export receivables instead of waiting for the buyer’s payment. The two common forms are Factoring and Forfaiting. It provides immediate cash flow to exporters and transfers collection and buyer-credit risk to the bank or factor.

(d) Duty Drawback

Duty Drawback is a scheme under which exporters receive a refund of customs duty and other import taxes paid on imported raw materials used to manufacture exported goods. It is administered by the National Board of Revenue (NBR). This scheme helps exporters remain competitive in the international market.

(e) Negotiation under Reserve

Negotiation under Reserve is the negotiation of export documents containing discrepancies, where the negotiating bank pays the exporter but reserves the right to recover the amount if the issuing bank refuses the documents. It is generally done at the request of the exporter and often against a Letter of Indemnity.

(f) Packing Credit

Packing Credit is a pre-shipment loan provided to exporters to finance the purchase of raw materials, processing, manufacturing, and packing of goods before shipment. It is usually granted against an export order or Letter of Credit (LC). The loan is adjusted after export proceeds are received.

(g) Red Clause Letter of Credit

A Red Clause Letter of Credit is an LC that allows the beneficiary to receive pre-shipment advances before presenting shipping documents. The issuing bank remains liable for such advances if the exporter fails to ship the goods. It is mainly used to provide working capital to exporters before shipment.