Project of Export

8/6/2019 Project of Export

1/95

Project ReportOn

STUDY OF EXPORT FINANCE

Submitted for the partial fulfillment of the Award

Of

Master of BusinessAdministration

DEGREE(Session 2009-2011)

SUBMITTED BY

MANSI MITTALRoll No.0903270023

UNDER THE GUIDANCE OF

Internal Guide: Ms.Sonam GulatiDepartment of Management

ABES ENGINEERING COLLEGE,GHAZIABAD

AFFILIATED TO


2/95

GAUTAM BUDDH TECHNICAL UNIVERSITY, LUCKNOW

PROJECT REPORT ON

EXPORT FINANCE

OFGOOD LUCK GROUP


3/95

CANDIDATE DECLARATION CERTIFICATE

I hereby declare that the work which is being presented in this report entitled EXPORT FINANCE is an

authentic record of my own work carried out under the supervision of Ms. Sonam Gulati.

The matter embodied in this report has not been submitted by me for the award of any other degree.

Dated:

Name of Student: MANSI MITTALDepartment: MBA

This is to certify that the above statements made by the candidate are correct to the best of my knowledge.

(Head of Department) (Name of Supervisor)Date: Designation:

Department:Date:


4/95

ACKNOWLEDGEMENT

I would like to express my deep and sincere gratitude to GOOD LUCK STEEL TUBES PVT. LTD. for

provided me with the opportunity to do my project on an interesting area.

The project was a great source of learning and a good experience as it made me aware of the professional

culture and conduct that exists in an organization.

Though at the onset of ambitious project one always encounters certain difficulties in the beginning, however,

overcoming these difficulties of the project as well as making it a success, greatly depends on the

encouragement, inspiration, and help given by Mr . D.P Yadav. For completion of this project various people

have put lots of efforts.

I will also like to thank other management trainees of my group for their cooperative attitude and

queries which made me understand the different topics of IB quickly.

And finally I would like to thank god & my parents who inspired a lot for the completion of the project.

DATEPLACE (Signature of Student)


5/95

TABLE OF CONTENTS

Page No.Chapter 1- INTRODUCTION

Introduction to Project.. 1-5Need of the Study 6Scope of Study. 7Objective of Study.. 8

Chapter 2- RESEARCH METHODOLOLY

Research Methodology 9Limitations of Study 10

Chapter 3- DESCRIPTIVE STUDY

Export Finance. 11-13Documentation.. 14-31Methods of Payment. 32-44Finance from Banks. 45-48Limit Approval. 49-50Pre-Shipment Finance.. 51-57Post-Shipment Finance 58-66Risk in Export.. 67-80EXIM Policy.. 81-84FEMA Act. 85FEDAI Guidelines. 86-90Export Promotion Benefits.. 91-97

Chapter 4- ANALYSIS AND INTERPRETATION

Data Analysis and Interpretation 98-102SWOT Analysis. 103-104

Chapter 5- CONCLUSION

Conclusion and Suggestion.. 105-107


6/95

Chapter 6- BIBLIOGRAPHY

Bibliography. 108-109Glossary 110-111

CHAPTER-1

INTRODUCTION


7/95

COMPANY PROFILE

GOODLUCK GROUP:

Goodluck Group, an ISO 9001 company is one of Indias leading and fastest growing business groups with over 1000 employees and having multi location plants and units, with experience of more than two decades in theManufacturing of Pipes and Sheets. Goodluck has diversified business interests in the national and internationalmarket.

MISSION:

To excel in quality international business.

VISION: To be recognized internationally as best procurement partner.

CORE VALUES:

Customer Loyalty Customer Satisfaction Commitment to quality Continuous Communication

GOOD LUCK STEEL TUBES LTD.-

Good Luck Steel Tubes Ltd. is an ISO 9001:2000 company and government of India recognized categoryexport House. Good Luck incepted in the year 1987 and since become one of the leading quality Manufactureof both Galvanized/Black Steel pipes as per various National/International Specifications with a capability tomanufacture Tailor made Pipes/Structures/Poles/Towers etc.Besides Good luck is also manufacturing Hollow Sections, Poles, Towers (Transmission/Telecommunication), CR coils and GP/GC Sheets with a Production capacity of 1,50,000 Tonnes Per annum.

Good Luck has the latest technology plant and Machinery and Testing Equipments coupled with vigilantQuality Assurance Department, which ensures better quality Products.Their Products are also regularly inspected by various Third Party inspection Agencies both from National andInternational Sectors via SGS, Bureau VERITAS, Lloyds, QSS, Crown, TUV etc.

Good Luck with optimized Production and perfect Management ensures good quality Products, whichultimately Guarantees the Buyers Satisfaction.

Today, Good Luck enjoys strong satisfied Customers base both within India and in highly sensitive Marketslike Belgium, Germany, Greece, France, Netherlands, Sweden, UK, Dubai, Iraq, Kuwait, South Africa,Australia, New Zealand, and U.S.A etc.

APPLICATIONS-1. Water Pipe lines:

Water Mains Plumbing Sewage Systems Industrial Water Lines Plant Piping Domestic Water Supply

2. Agriculture and Irrigation: Deep tube-wells and casing pipes


8/95

3. Gas Pipes Lines: Pipe Lines for natural gas, LPG and other non-toxic gases.

4. Oil Pipes lines: Oil refinery piping Crude oil piping Cross country pipe line.

5. Construction industry: Scaffolding Structural purposes.

6. Chemicals Industries: Conveying of chemicals

7. Fire fighting System Air-Conditioning (HVAC) Power Projects: Ash handling system LP piping

8. Automobile Industry: Air and Water flow system

9. Other Purposes: Supply of exhaust piping Steel tubes for idlers and troughed belt conveyers Cold Storage Sugar Industry LPG cylinder supporting rings.

It is at Good Luck where Customers satisfaction is paramount. It is having 2 divisions:

1. GOOD LUCK ENGINEERING CO.- A unit of Good Luck Steel Tubes ltd. is an ISO 9001:2000 company and Government of India

recognized Three Star Export House. The Forging Division of Good luck Steel is exclusively engaged in manufacturing of Steel

Flanges, rings, shafts and hollow forging matching international standards and specifications. As for the Flanges, they manufacture a variety of blind, slipon, weld neck and butt welded

flanges conforming to BS/ASTM/DIN/JIS standards.

Their production facilities are presently manufacturing flanges in various chemical compositionof Carbon Steel, alloy steel, stainless steel and exotic materials like duplex etc. Their manufacturing facilities are equipped with 3 forging hammers with capacities varying in

the range of 10 tons each. Their in-house machining facilities are capable of maintaining high precision requirements.

Accordingly, their product range includes flanges in the size range of 20mm to 1200mm indiameter.

Their Products have application in Oil Sugar, Chemical, Fertilizer, paper and Food industries aswellAs in steel plants, rolling mills, hydraulic machinery, railways, power plants, etc.

Good luck Engineering Co. has comprehensive mechanical testing facilities that include impacttesting, tensile testing and non- destructive testing. The organization uses the most advancedequipment such as Ultrasonic testing and highly sensitive mobile spectrometer, specialized dye

penetrate and magnetic particle technique.

APPLICATIONS-1. Oil Industry2. Fertilizer Industry3. Chemical Industry4. Sugar Industry5. Paper Industry

6. Hydraulic Machinery7. Railways8. Steel Plants


9/95

9. Rolling Mill10. Gear Box Manufacturer 11. Power Plant and Turbine12. Crane Manufacturer

2. GOOD LUCK INDUSTRIES-

A unit of GOOD LUCK STEEL TUBES LTD. is also an ISO 9001:2000 company and government of India Recognized Three Star Export House which make ERW/ CEW PRECISION TUBES.

MAJOR APPLICATION:

1. Cycle industry- Cycle frames, Forks, hub tubes

2. Chains- Automotive, industrial and Cycle chains

3. Automotive Industry: Two/ Three Wheelers, Cars, LCVs and HCVs Classic Tube Bus Body Building Main Beam Tube Automobile Axle Tube Shock Absorbers Propeller Shafts Steering Columns Tie Rods and Drags Links Exhaust Tubes, Aluminized Tubes Front Fork Tubes for Two Wheelers Hydraulic Line Tubing

4. Boilers and Heat Exchangers:

Chemical Industry Sugar Industry Paper Industry Process industry

5. Oil Industry:

Line pipes to API specifications

6. Furniture Industry7. Construction Industry8. Machinery Manufacture9. Air Pollution Control Equipment10. Railway Coaches11. Electrical Industry:

Transformers Fan Down Rods Conduits

BUSINESS DIVISION

Pipe DivisionWith combined capacity of more than 1, 00,000 MT, PipeDivision manufactures all kind of ERW Black Steel Pipes for various purposes.

Steel Pipes manufactured as per ASTM specification. Capability exists for galvanizing pipes up to 24 feet in

length and 12 inches in diameter.
http://www.goodlucksteel.com/tubes-pipes.htmlhttp://www.goodlucksteel.com/tubes-pipes.htmlhttp://www.goodlucksteel.com/tubes-pipes.htmlhttp://www.goodlucksteel.com/tubes-pipes.html


10/95

Manufactures galvanized hollow sections.

Leading manufacturers of manipulated tubes.

Cold Rolled and Galvanized Sheets-Coils Division

This unit is engaged in manufacturing standard range of Galvanized Plain & Corrugated Sheets/ Coils for wide rangeof applications. Cold Rolled Sheets/Coils produced by GLSTare widely used in various applications.

International Division International Division is engaged in export of wide range of engineering

products, construction hardware, plants & machinery. They are manufacturing and exporting Mild Steel Black ERW square tubes, Rectangular Tubes and RoundHollow Section and Cold rolled Steel sections as per customer requirements with anti rust oil coating frominside and outside of the tubes to ensure safe delivery to end products.

INTRODUCTION

The Project deals in the field of INTERNATIONAL TRADE AND FINANCE , and is more concerned with

the mitigation of financial as well as operational risks involved in the trade between the two parties (i.e. buyer

and seller ) who are located in two distinctly located countries. Apart from this the project also tries to explain

the trade practices, exchange regulations, legal systems, documentation and financing that are involved in the

international trade which differ from each other, because of their different locations and regulations according

to their country.

NEED OF THE STUDY
http://www.goodlucksteel.com/galvanized-sheets-coils.htmlhttp://www.goodluckinternational.com/http://www.goodlucksteel.com/galvanized-sheets-coils.htmlhttp://www.goodlucksteel.com/galvanized-sheets-coils.htmlhttp://www.goodluckinternational.com/


11/95

Since last two decades, Indian products are well accepted in International Market and India has build up a base

platform in European, USA and Latin American market. India International growth is increasing drastically.

Now it is become necessary to review and study the important factors to maintain and sustain the growth.

SCOPE OF STUDY


12/95

International trade is having wide area of study which can be cover as marketing, financing, logistics and

statutory compliances. However in general below are major focus areas where study is mandate to operate and

control International business:

1. Development of Infrastructure to fast movement of Cargo.

2. To provide cheaper and easy financing to exporters.

3. Government Policy and Procedure should be liberal.

4. Support to exporter to meet their commitment with foreign buyer.

OBJECTIVE OF STUDY


13/95

My project intents to provide a clear view of how the parties involved in International Trade enter into an

export contract, what all risks are involved in this contract and also the major principles applicable to export

finance. It also gives detail information about all the documents required for financing to meet export

requirement.

The report also gives a detailed explanation to all the referred key points:

What is the role of banks in international trade?

How does an Export and Import Finance work to mitigate the risk of banks?

What all uniform principles are followed while entering into export contracts?

What are the various types of Credit letters issued by banks under International Trade?

How the banks control the Operational Risk on special credits?

What all documents are required for Export?


14/95

CHAPTER-2

RESEARCH

METHODOLOGY


15/95

RESEARCH METHODOLOGY

Research Design

A Research Methodology defines the purpose of the research, how it proceeds, how to measure

progress and what constitute success with respect to the objectives determined for carrying out the

research study.

The appropriate research design formulated is detailed below.

Exploratory research: this kind of research has the primary objective of development of insights

into the problem. It studies the main area where the problem lies and also tries to evaluate some

appropriate courses of action.

The research methodology for the present study has been adopted to reflect these realties and help

reach the logical conclusion in an objective and scientific manner.

The present study contemplated an exploratory research by adopting Interaction with Representatives of Area

concerned and study of Books i.e EXIM Policy, UCP 600, Incoterms, FEMA master circulars etc.

Sample size: 5

1. Nature of Data

Primary Data: Primary data was collected using interaction.

Secondary data: Secondary data that is already available and published. It could be internal and external

source of data.

o Internal source : which originates from the specific field or area where research is carried out

e.g. publish brochures, official reports etc.

o External source : This originates outside the field of study like books, periodicals, journals,

newspapers and the Internet. As far as internet is concerned the articles have been taken from E-

research papers, journals, E-books, and e-paper.


16/95

LIMITATIONS OF STUDY

The following are the few limitations found during the course of guidance:

1. Limited Access: While conducting onsite training certain limitations are important Virtue of data

privacy and confidentiality of the customer information.

2. Market Specific: As the study is conducted with the people executing the job, at Times the limitation

of Market Specific Practices is encountered.

3. Limitation of historical data: As trade existed since 17 th century, the agreements, laws and

Policies governing international trade practices also kept on changing with the demand of time,

Relevant historical data is not available.

4 .Confidential Information: Foreign trading includes many confidential data and information that

Cannot be made available to every person involved, therefore as a trainee it is difficult to get access to all the

internal information related to trade of the bank like banks credit limits and pricing.


17/95

CHAPTER-3

DESCRIPTIVE

STUDY


18/95

EXPORT FINANCE - INTRODUCTION

Credit and finance is the life and blood of any business whether domestic or international. It is more

important in the case of export transactions due to the prevalence of novel non-price competitive techniques

encountered by exporters in various nations to enlarge their share of world markets.

The selling techniques are no longer confined to mere quality; price or delivery schedules of the

products but are extended to payment terms offered by exporters. Liberal payment terms usually score over the

competitors not only of capital equipment but also of consumer goods.

The payment terms however depend upon the availability of finance to exporters in relation to its

quantum, cost and the period at pre-shipment and post-shipment stage. Production and manufacturing for

substantial supplies for exports take time, in case finance is not available to exporter for production. They will

not be in a position to book large export order if they dont have sufficient financial funds. Even merchandise

exporters require finance for obtaining products from their suppliers.

This project is an attempt to throw light on the various sources of export finance available to exporters,

the schemes implemented by ECGC and EXIM for export promotion and the recent developments in the form

of tie-EXIM tie-ups, credit policy announced by RBI in Oct 2001 and TRIMS.

CONCEPT OF EXPORT FINANCE:

The exporter may require short term, medium term or long term finance depending upon the types of

goods to be exported and the terms of statement offered to overseas buyer. The short-term finance is required to

meet working capital needs. The working capital is used to meet regular and recurring needs of a business

firm. The regular and recurring needs of a business firm refer to purchase of raw material, payment of wages

and salaries, expenses like payment of rent, advertising etc.

The exporter may also require term finance. The term finance or term loans, which is required for

medium and long term financial needs such as purchase of fixed assets and long term working capital.

Export finance is short-term working capital finance allowed to an exporter. Finance and credit are available not

only to help export production but also to sell to overseas customers on credit.


19/95

OBIECTIVES OF EXPORT FINANCE :

To cover commercial & Non-commercial or political risks attendant on granting credit to a foreign

buyer.

To cover natural risks like an earthquake, floods etc.

An exporter may avail financial assistance from any bank, which considers the ensuing factors:

a) Availability of the funds at the required time to the exporter.

b) Affordability of the cost of funds.

Export Financing- Sources

1. Commercial banks which are members of the Foreign Exchange Dealers Association provide

finance at a concessional rate of Interest and are refinanced by the Reserve Bank/Export Import Bank

of India. In case they do not wish to avail refinance, they are entitled for an interest rate subsidy.

2. Export Import Bank of India , in certain cases, participates with commercial bank inextending medium term loans to exporters.

Other Related Institutions:

3. Reserve Bank of India , being the central bank of country lays down the policy frame work and

provides guidelines.

The RBI functions as refinancing institution for short and medium term loans respectively, provided by

Commercial Banks.

4. Export Credit & Guarantee Corporation (ECGC) also plays an important role through various

policies and guarantees providing cover for commercial and political risks involved in export trade.


20/95

DOCUMENTATION

Introduction

International market involves various types of trade documents that need to be produced while making

transactions. Each trade document is differ from other and present the various aspects of the trade like

description, quality, number, transportation medium, indemnity, inspection and so on. So, it becomes important

for the importers and exporters to make sure that their documents support the guidelines as per international

trade transactions. A small mistake could prove costly for any of the parties.

For example, a trade document about the bill of lading is a proof that goods have been shipped on board, while

Inspection Certificate certifies that the goods have been inspected and meet quality standards. So, depending on

these necessary documents, a seller can assure a buyer that he has fulfilled his responsibility whilst the buyer is

assured of his request being carried out by the seller.

The benefits of documentation

Documentation is a key means of conveying information from one person or company to another, and also

serves as permanent proof of tasks and actions undertaken throughout the export process. Documentation is not

only required for your own business purposes and that of your business partner, but also to satisfy the customs

authorities in both countries and to facilitate the transportation of and payment for goods sold.

One value of documentation is that copies can be made and shared with the parties involved in the export

process (although you should always ensure that you make identical copies from an agreed-upon master - it is

no use making changes without the other party's agreement and then presenting these as the "latest" copies). If

the documentation is complete, accurate, agreed upon by the parties involved and signed by each of these of

these parties (or their representatives), the document will represent a legally binding document.

Functions of export documentation


21/95

Export documentation may serve any or all of the following functions :

An attestation of facts, such as a certificate of origin

Evidence of the terms and conditions of a contract if carriage, such as in the case of an airway bill

Evidence of ownership or title to goods, such as in the case of a bill of lading

A promissory note; that is, a promise to pay

A demand for payment, as with a bill of exchange

A declaration of liability, such as with a customs bill of entry

A receipt for goods received.

Before submitting the documents to the bank, the exporter should follow certain safeguards that are:

Documents should be submitted in requisite number.

Documents should be issued by person required to issue.

Documents should be dated wherever required.

Documents should be manually signed wherever stipulated.

Documents should be consistent with each other.

Documents should be presented at the place stipulated.

Documents should be presented within the expiry date of the LC.

The following is a list of documents often used in international trade:

Air Waybill


22/95

Bill of Lading

Certificate of Origin

Combined Transport Document

Draft (or Bill of Exchange)

Insurance Policy (or Certificate)

Packing List/Specification

Inspection Certificate

Air Waybills

Air Waybills make sure that goods have been received for shipment by air. A typical air waybill sample

consists of three originals and nine copies. The first original is for the carrier and is signed by an export agent;

the second original, the consignee's copy, is signed by an export agent; the third original is signed by the carrier

and is handed to the export agent as a receipt for the goods.

Air Waybills serves as:

Proof of receipt of the goods for shipment.

An invoice for the freight.

A certificate of insurance.

A guide to airline staff for the handling, dispatch and delivery of the consignment.

The principal requirement for an air waybill is:

The proper shipper and consignee must be mention.

The airport of departure and destination must be mention.

The goods description must be consistent with that shown on other documents. Any weight, measure or shipping marks must agree with those shown on other documents.

It must be signed and dated by the actual carrier or by the named agent of a named carrier.

It must mention whether freight has been paid or will be paid at the destination point.

Types of air waybills


23/95

There are two types of air waybills used for the international transportation of air cargo:

The "airline air waybill", with preprinted issuing carrier identification,

The "neutral air waybill" without preprinted identification of the issuing carrier in any form and used by

other bodies than air carriers (such as freight forwarder).

Bill of Lading (B/L)

Bill of Lading is a document given by the shipping agency for the goods shipped for transportation form one

destination to another and is signed by the representatives of the carrying vessel.

Bill of landing is issued in the set of two, three or more. The number in the set will be indicated on each bill of

lading and all must be accounted for. This is done due to the safety reasons which ensure that the document

never comes into the hands of an unauthorized person. Only one original is sufficient to take possession of

goods at port of discharge so, a bank which finances a trade transaction will need to control the complete set.

The bill of lading must be signed by the shipping company or its agent, and must show how many signed

originals were issued.

It will indicate whether cost of freight/ carriage has been paid or not:

"Freight Prepaid: Paid by shipper

"Freight collect: To be paid by the buyer at the port of discharge

the bill of lading also forms the contract of carriage.

To be acceptable to the buyer, the B/L should:

Carry an "On Board" notation to showing the actual date of shipment, (Sometimes however, the "on

board" wording is in small print at the bottom of the B/L, in which cases there is no need for a dated "on

board" notation to be shown separately with date and signature.)


24/95

Be "clean" having no notation by the shipping company to the effect that goods/ packaging are

damaged.

The main parties involve in a bill of lading are:

Shipper

o The person who send the goods.

Consignee

o The person who take delivery of the goods.

Notify Party

o The person, usually the importer, to whom the shipping company or its agent gives notice of

arrival of the goods.

Carrier

o The person or company who has concluded a contract with the shipper for conveyance of goods

The bill of lading must meet all the requirements of the credit as well as complying with UCP 500. These are as

follows:

The correct shipper, consignee and notifying party must be shown.

The carrying vessel and ports of the loading and discharge must be stated.

The place of receipt and place of delivery must be stated, if different from port of loading or port of

discharge.

The goods description must be consistent with that shown on other documents.

Any weight or measures must agree with those shown on other documents.

Shipping marks and numbers and /or container number must agree with those shown on other

documents.

It must state whether freight has been paid or is payable at destination.

It must be dated on or before the latest date for shipment specified in the credit.

It must state the actual name of the carrier or be signed as agent for a named carrier.

FORMAT OF B/L:


25/95


26/95

Certificate of Origin

The Certificate of Origin is required by the custom authority of the importing country for the purpose of

imposing import duty. It is usually issued by the Chamber of Commerce and contains information like seal of

the chamber, details of the good to be transported and so on.

The certificate must provide that the information required by the credit and be consistent with all other

document, it would normally include:

The name of the company and address as exporter.

The name of the importer.

Package numbers, shipping marks and description of goods to agree with that on other documents.

Any weight or measurements must agree with those shown on other documents.

It should be signed and stamped by the Chamber of Commerce.


27/95

FORMAT OF CERTIFICATE OF ORIGIN:

GOOD LUCK STEEL TUBES LTD."GOOD LUCK HOUSE"AMBEDKAR ROADGHAZIABAD -201 001 (U.P.)INDIA

M/S XYZEXPORTPVT. LTD.ENGLAND

FROM WORKS AT SIKANDRABAD TO ICD TKD NEWDELHITO ICD TKD NEW DELHI TO MUMBAI BY TRAIN THENMUMBAI TO PORT OF FREETOWN BY SEA

1 1684 PCS ( 27 BUNDLES ) "P" 19.115 GLST/WELDED HOT DIPEED GALVANISED STEEL PIPESWITH BOTH END THREADED, ONE END SOCKETEDAND OTHER END PROTECTED WITH PLASTIC P.V.C.CAP IN LENGTH OF 5.80 MTRS +- 50 MM.

MT. 2010-NT.WT. 2011/

1219.085 05.02.

MT. 2010

AS PER PROFORMA INVOICE NUMBER GLST/2009-2010/12RR DATED 05.02.2010

ALL OTHER DETAILS ARE AS PER COMMERCIALINVOICE NO. GLST/2010-2011/65 DATED

01.01.2010

WE HEREBY CERTIFY THAT THE GOODS ARE OF INDIAN

ORIGIN

LIBERIA NEW DELHI12.04.2010


28/95

APPLICATION FOR CERTIFICATE OF ORIGINExporter

Ref. No. GLST/2010-2010/12 DATED 05.02.2010 Dated 12.04.2010GOOD LUCK STEEL TUBES LTD.

"GOOD LUCK HOUSE" AMBEDKAR ROAD To, GHAZIABAD -201 001 (U.P.) INDIA The Secretary

DELHI CHAMBER OF COMMERCE

Consignee 49, RANI JHANSI ROAD, NEW DELHI 110055M/S XYZ EXPORT PVT. LTD PHONE : 3616421 , 3515828ENGLAND

Dear Sir,

This is to request the favour of your issuing us Certificate of Origin (in..

.....5 COPIES..) in respect of the consignment particulars of which are given herwith

Yours Sincerely

Pre-Carriage by Place of Receipt by pre-carrier ICD, TKD, NEW DELHI Encl. Signature of Exporter

Vessel/Flight No. Port of Loading 1. COMMERCIAL INVOICE IN 5 COPIES

MUMBAI/ INDIA Port of Discharge Final Destination

FREETOWN FREETOWN Marks & Nos./Container No.

No. & Kinds of Pkgs. Description of goods Quantity Remarks

1684 PCS ( 27 BUNDLES ) 1620PCS

WELDED HOT DIPEED GALVANISED STEEL PIPES WITH BOTH END THREADED, ONEEND SOCKETED AND OTHER END PROTECTED WITH PLASTIC P.V.C. CAP IN LENGTHOF 5.80 MTRS +- 50 MM.

AS PER PROFORMA INVOICE NUMBER GLST/2009-2010/12RR DATED05.02.2010

ALL OTHER DETAILS ARE AS PER COMMERCIAL INVOICE NO. INVOICE NO. GLST/2010-2011/65 DATED 01.01.2010

WE HEREBY CERTIFY THAT GOODS ARE OF INDIAN ORIGIN

IE CODE NO. 0593020707

Declaration by Exporter

Signature & Date


29/95

Combined Transport Document

Combined Transport Document is also known as Multimodal Transport Document, and is used when goods are

transported using more than one mode of transportation. In the case of multimodal transport document, the

contract of carriage is meant for a combined transport from the place of shipping to the place of delivery. It also

evidence receipt of goods but it does not evidence on board shipment, if it complies with ICC 500, Arts 26(a).

The liability of the combined transport operator starts from the place of shipment and ends at the place of

delivery. This documents need to be signed with appropriate number of originals in the full set and proper

evidence which indicates that transport charges have been paid or will be paid at destination port.

Multimodal transport document would normally show:

That the consignee and notify parties are as the credit.

The place goods are received, or taken in charges, and place of final destination.

Whether freight is prepaid or to be collected.

The date of dispatch or taking in charge, and the "On Board" notation, if any must be dated and signed.

Total number of originals.

Signature of the carrier, multimodal transport operator or their agents.

Commercial Invoice

Commercial Invoice document is provided by the seller to the buyer. Also known as export invoice or import

invoice, commercial invoice is finally used by the custom authorities of the importer's country to evaluate the

good for the purpose of taxation.

The invoice must:

Be issued by the beneficiary named in the credit (the seller).


30/95

Be address to the applicant of the credit (the buyer).

Be signed by the beneficiary (if required).

Include the description of the goods exactly as detailed in the credit.

Be issued in the stated number of originals (which must be marked "Original) and copies.

Include the price and unit prices if appropriate.

State the price amount payable which must not exceed that stated in the credit

Include the shipping terms.

FORMAT OF COMMERCIAL INVOICE:

COMMERCIAL INVOICEExporter Invoice No. & Date Exporter's ref. GOOD LUCK STEEL TUBES LIMITED GLST/2010-2011/12 DATED 05.02.2010 GOOD LUCK HOUSEAMBEDKAR ROAD Buyer's Order No. & Date GHAZIABAD - 201 001 (UP)INDIA Other Reference(s)

P.I. NO. GLST/2009-2010/65 DATED 01.01.2010Consigne

e Buyer (If other than consignee) TO ORDER M/S XYZ EXPORT PVT. LTDSIERRA LEONE

Country of Origin of goods Country of Final Destination

INDIA SIERRA LEONEPre-Carriage by Place of Receipt by pre-carrier

ICD DADRI TERMS OF DELIVERY : CFR FREETOWNVessel/Flight No. Port of Loading

MUMBAI/INDIA TERMS OF PAYMENT : FAX COPY OF DOCUMENTSPort of Discharge Final Destination

FREETOWN FREETOWNMarks &Nos./Container No.

No. & Kinds of Pkgs. Description of goods Quantity Rate Amount

10 PALLETS (6620SHEETS ) COLD ROLLED GALVANISED NON ALLOY STEEL SHEETS(CORRUGATED)

SIZE PALLETSNOS

TOTAL NOOF

SHEETS

QUANTITYIN MTS.

UNIT PRICE US $PER MT.

AMOUNT INUSD

0.30 MM X 762 MM X 2.44 MTRS 10 6620 26.885 126.00 3387.51 665 MM AFETR CORRUGATED

FREIGHT IN USD1200/FCL

TOTAL 10 6620 26.885 AmountChargeable(In words)

TOTAL CFR FREETOWN US DOLLARS THREE THOUSAND THREE HUNDREDEIGHTY SEVEN AND CENTS FIFTY ONE ONLY. TOTAL USD 3387.51

EXPORT UNDER DEPB SCHEME IN TERMS OF PARA 2.4 IMPORT-EXPORT POLICY 2004-2005, EXPORT UNDER


31/95

PASS BOOK SCHEME (POST EXPORT BASIS)

ITEM NET WT. (MT) C & F VALUE FOB VALUE SL. ON OF DEPBRATE

IN USDIN USD

DEPBRATE

COLD ROLLEDGALVANISED NONALLOY STEEL SHEETS(CORRUGATED)

26.885 3387.51 2187.51 329 5%

TOTAL 26.885 3387.51 2187.51 Declaration:

Signature & Date

We declare that this Invoice shows that actual price of the goods described and that allparticulars are true and correct.

Bill of exchange

A Bill of Exchange is a special type of written document under which an exporter ask importer a certain amount

of money in future and the importer also agrees to pay the exporter that amount of money on or before the

future date. This document has special importance in wholesale trade where large amount of money involved.

Following persons are involved in a bill of exchange:

Drawer: The person who writes or prepares the bill.

Drawee : The person who pays the bill.

Payee : The person to whom the payment is to be made.

Holder of the Bill : The person who is in possession of the bill.

On the basis of the due date there are two types of bill of exchange:

Bill of exchange after Date : In this case the due date is counted from the date of drawing and is also

called bill after date.

Bill of exchange after Sight : In this case the due date is counted from the date of acceptance of the billand is also called bill of exchange after sight.


32/95

FORMAT:

Bill of Exchange

02.07.2010

For EURO 13687.00

Drawn under IRREVOCABLE DOCUMENTARY CREDIT NUMBER R658769-H3 DATED

01100114 of XYZ BANK GERMANY At SIGHT Pay to this FIRST exchange ( SECOND

of the same tenor & date being unpaid) to the order of ING VYSYA BANK LTD., 30-

31, NAVYUG MARKET, GHAZIABAD 201001 (U.P.), INDIA the sum of EURO

THIRTEEN THOUSAND SIX HUNDRED EIGHTY SEVEN ONLY for the value received

and charge the same to the account of our Invoice No. GLST/2010-2011/34 DATED

02.04.2010 Bill of Lading No.IR64378 DATED 25.05.2010

XYZ BANK


33/95

Insurance Certificate

Also known as Insurance Policy, it certifies that goods transported have been insured under an open policy and

is not actionable with little details about the risk covered.

It is necessary that the date on which the insurance becomes effective is same or earlier than the date of

issuance of the transport documents.

Also, if submitted under a LC, the insured amount must be in the same currency as the credit and usually for the

bill amount plus 10 per cent.

The requirements for completion of an insurance policy are as follow:

The name of the party in the favor which the documents have been issued.

The name of the vessel or flight details.

The place from where insurance is to commerce typically the sellers warehouse or the port of loading

and the place where insurance cases usually the buyer's warehouse or the port of destination. Insurance value that specified in the credit.

Marks and numbers to agree with those on other documents.

The description of the goods, which must be consistent with that in the credit and on the invoice.

The name and address of the claims settling agent together with the place where claims are payable.

Countersigned where necessary.


34/95

Date of issue to be no later than the date of transport documents unless cover is shown to be effective

prior to that date.

FORMAT OF INSURANCE CERTIFICATE:


35/95

The Branch Manager ABC Insurance Co. Ltd.New Delhi

KIND ATTN. MR. G.P YADAVRef. :

Dear Sir,

1 INVOICE NO. GLST/2010- 2011/045 DATED 05.04.20102 INVOICE VALUE USD 10,789.003 INSURED VALUE USD 11,867.90 (Invoice Value + 10%)

Rs. 5571984 PREMIUM Rs.5 QUANTITY 1800 PCS ( 20 BUNDLES)6 COMMODITY

8 L/C NO,.

9 VOYAGE FROM FACTORY SIKANDRABAD (INDIA) TO ROTTERDAM(SELLER WAREHOUSE TO BUYER WAREHOUSE)

10 PACKING EXPORT WORTHY PACKING IN 1 X 40' CONTAINER

We request you please provide us insurance certificate at the earliest.

Thanking you.

Yours faithfully,for GOOD LUCK STEEL TUBES LTD.

DIRECTOR

9.6.2010

Open Marine Overseas Policy No. 573800/21/2010/11/011

Please cover our shipment as per detail herebelow under the above policy and issuethe Insurance Certificate at the earliest :

WELDED HOT DIPPED GALVANISED STEELPIPE, BOTH ENDS PLAIN IN FIXED LENGTH OF6 MTRS ( TOL: +/-50 MM), ACCORDING TO EN10255DELIVERY TERM: CFR CY/ CY ROTTERDAM,INCOTERMS 2000 FCL-FCL, INVOICING ONTHEORETICAL WEIGHT.


36/95

Packing List

Also known as packing specification, it contains details about the packing materials used in the shipping of

goods. It also includes details like measurement and weight of goods.

The packing List must:

Have a description of the goods ("A") consistent with the other documents.

Have details of shipping marks ("B") and numbers consistent with other documents

The purpose of the packing list

The packing list should be attached to the outside of a package in a waterproof envelope or plastic

sheath marked "Packing list enclosed". The list is used by the shipper or forwarding agent to determine

(1) the total shipment weight and volume and (2) whether the correct cargo is being shipped. In addition,

customs officials (both local and foreign) may use the list to check the cargo. Packing lists come in

fairly standard forms and can be obtained from your freight forwarder.


37/95

FORMAT:

PACKING LISTExporter Invoice No. & DateGOOD LUCK STEEL TUBES LIMITED GLST/2010-2011/12 DATED 05.02.2010 GOOD LUCK HOUSE AMBEDKAR ROAD Buyer's Order No. & Date GHAZIABAD - 201 001 (UP)INDIA Other Reference(s)

P.I. NO. GLST/2009-2010/65 DATED 01.01.2010

Consignee Buyer (If other thanconsignee)

TO ORDER M/S XYZ EXPORT PVT. LTD. SIERRA LEONE Country of Origin of goods Country of Final Destination

INDIA SIERRA LEONEPre-Carriageby Place of Receipt by pre-carrier

ICD DADRI TERMS OF DELIVERY : CFR FREETOWN

Vessel/FlightNo. Port of LoadingMUMBAI/INDIA TERMS OF PAYMENT : FAX COPY OF DOCUMENTS

Port of Discharge

FinalDestination

FREETOWN FREETOWNMarks &Nos./Container No.

No. & Kinds of Pkgs. Description of goods

Quantity

Remarks

10 PALLETS (6620SHEETS ) COLD ROLLED GALVANISED NON ALLOY STEEL SHEETS(CORRUGATED)

SIZE PALLETS NOS PCS PERPALLET(NET WT) IN MT (GROSSWT) IN MT

0.30 MM X 762 MM X 2.44 MTRS 1 660 2.730 2.745 665 MM AFETR CORRUGATED 2 660 2.740 2.755 3 660 2.675 2.690 4 660 2.670 2.685 5 660 2.650 2.665 6 660 2.680 2.695 7 660 2.675 2.690 8 660 2.715 2.730 9 680 2.720 2.735 10 660 2.630 2.645

NETWEIGHT : 26.885 MTGROSSWEIGHT: 27.035 MT

TOTAL 10 6620 26.885 27.035EXPORT UNDER DEPB SCHEME IN TERMS OF PARA 2.4 IMPORT-EXPORT POLICY 2004-2005, EXPORTUNDER PASS BOOK SCHEME (POST EXPORT BASIS)

ITEM NET WT.(MT)

C & FVALUE

FOBVALUE

SL. ONOF

DEPBRATE

IN USDIN USD DEPB

RATE

COLD ROLLEDGALVANISED NONALLOY STEEL SHEETS(CORRUGATED)

26.885 3387.51 2187.51 329 5%

TOTAL 26.885 3387.51 2187.51

Signature & Date


38/95

Inspection Certificate

Certificate of Inspection is a document prepared on the request of seller when he wants the consignment to be

checked by a third party at the port of shipment before the goods are sealed for final transportation.

In this process seller submit a valid Inspection Certificate along with the other trade documents like invoice,

packing list, shipping bill, bill of lading etc to the bank for negotiation.

On demand, inspection can be done by various world renowned inspection agencies on nominal charges.


39/95

PAYMENT METHODS IN EXPORT

There are 3 standard ways of payment methods in the export import trade international trade market:

1. Clean Payment

2. Collection of Bills

3. Letters of Credit L/C

1. Clean Payments

In clean payment method, all shipping documents, including title documents are handled directly

between the trading partners. The role of banks is limited to clearing amounts as required. Clean payment

method offers a relatively cheap and uncomplicated method of payment for both importers and exporters.

There are basically two types of clean payments:

A. Advance Payment

In advance payment method the exporter is trusted to ship the goods after receiving payment from the

importer.

B. Open Account

In open account method the importer is trusted to pay the exporter after receipt of goods.

The main drawback of open account method is that exporter assumes all the risks while the importer get

the advantage over the delay use of company's cash resources and is also not responsible for the risk associated

with goods.

2. Payment Collection of Bills in International Trade


40/95

The Payment Collection of Bills also called Uniform Rules for Collections is published by

International Chamber of Commerce (ICC) under the document number 522 (URC522) and is followed by

more than 90% of the world's banks.

In this method of payment in international trade the exporter entrusts the handling of commercial and often

financial documents to banks and gives the banks necessary instructions concerning the release of these

documents to the Importer. It is considered to be one of the cost effective methods of evidencing a transaction

for buyers, where documents are manipulated via the banking system.

There are two methods of collections of bill:

A. Documents Against Payment D/P

In this case documents are released to the importer only when the payment has been done.

B. Documents Against Acceptance D/A

In this case documents are released to the importer only against acceptance of a draft.

3. Letter of Credit L/C

Brief History:

The term Letter of Credit was perhaps first of all used with Travelers Letter Of Credit issued by

banks to facilitate their preferred (valued) clients with the means of obtaining cash from their correspondent /

Agent banks situated abroad for use during their foreign travel and also for minimizing the need of carrying

huge sums of money, in order to avoid the risk of loss or robbery.Such Travelers Letter of Credit addressed to correspondent or agent banks indicated that, in consideration of

this facility of cash payment, the issuing bank would pay bills of exchange drawn by the correspondent / agent

bank along with their processing charges. Such Travelers Letter of credit also had a maximum amount and

expiry date available under the credit and each agent was required to indicate details of amounts paid and the

dates so that the next correspondent / agent can ascertain the balance available to be drawn.


41/95

The Documentary Credit Specialist here played a very important role, they were used to check the origin of

Letter Of Credit as per the letter provided by issuing bank stating the basis, on which credit is to be provided

along with the information saying, how to obtain reimbursement from the issuing bank. Such Documentary

Credit in its modern form appeared as a first vehicle for effecting payments under foreign trade transactions

among banks in 1840s.

It may well be, either as a result of their personal contacts or their business deals that in order to fulfill

each other needs more movement of goods had been seen since that time between two countries, that has given

a great push to international trade. The movement of such goods from one country to another is more

complicated than buying them from local market and more often it requires documents for transportation of

goods and making payments across borders. Therefore it can be concluded here that International Trade

involves various complexities and problems, which may be arise because of following reasons:

The parties to a sale contract are located in different countries and are governed by different legal

systems.

Currencies of the two countries are different.

Trade and exchange regulations applicable to both the parties are different.

In such a situation, a seller who ships goods will be apprehensive whether he will receive payment from

buyer. The buyer on the other hand will be concerned whether the seller will ship the goods ordered for and

deliver them in time. Given these complexities and problems, a need for an ideal method of settling

international trade payments was felt and so came the usage of Documentary Credits, commonly known as

Letter of Credits [LC].

Even this arrangement, initially created discomfiture as parties involved in the transaction have been using

different terminologies or we can say interpreting the arrangements in different ways. Subsequently, ICC came

up with a set of guidelines in the name of Uniform Customs and Practice for Documentary Credits (UCPDC) to

facilitate uniform interpretation of terminology used under documentary credit by all the concerned. The UCP

first appeared in 1933 and since then is getting revised with the experiences gained from time to time. The latest

Version that is in use till June 2007 came in 1993 under publication no 500 and now the upcoming UCP version

is available under publication no 600, which will be applicable from 1 st July 2007. The UCPDC has also

attained universal acceptance and the local courts too are referring it for settling trade disputes.

UCP 600-


42/95

UCP stands for Uniform Custom and Practice for Documentary Credit.

UCP 600 is the latest revision of the Uniform Customs and Practice that govern the operation of letters

of credit.

UCP 600 comes into effect on 01 July 2007

The 39 articles of UCP 600 are a comprehensive and practical working aid to bankers, lawyers,

importers, exporters, transport executives, educators everyone involved in letter of credit transactions

worldwide.

Various types of L/Cs are:

Various types of LCs are in operation based upon the need, nature and function. Such LCs are categorized as

under:

Based on Scope for cancellation:

Revocable Letter of credit : A revocable letter of credit is the one which can be revoked (either canceled

or amended) by the issuing bank without giving any prior notice to any of the parties involved. A

revocable letter of credit is disadvantageous from the exporters point of view. By opening a revocable

LC, the issuing bank does not make a definite undertaking to make payment to the exporter. However, if

a nominated bank has made payment to the beneficiary, prior to receipt of the notice of cancellation or

amendment, then the issuing bank will be responsible to reimburse the claim. If a LC is revocable it

would be referenced on its face.

Irrevocable Letter of Credit : Almost all the LCs opened in the course of international trade are

irrevocable LCs. Cancellation or any amendment to such an LC cannot be made without the prior

acceptance of all the parties concerned. An irrevocable LC is more desirable from the exporters point of

view.

Confirmed Letter of credit : Here, in addition to the issuing bank, another bank will add its confirmation

to the LC. In other words, a confirmed LC will have the guarantee of not only the issuing bank but also

of the confirming bank. It is important to mention here that only irrevocable letters of credit can be

confirmed. The confirming bank will add its confirmation only if requested by the issuing bank.

Confirming banks are usually located in the country of the beneficiary. Such LCs works for the


43/95

convenience of the beneficiary, as he will have to deal with a local bank rather than a bank situated in

another country.

Based on Tenor:

Sight Credit : When the payment is made either on demand or presentation, such a credit is called as

sight credit. Drawing of drafts is not compulsory under sight credit.

Usance Credit : It is also referred as Term credit. This credit requires draft to be drawn on the drawee or

specified bank indicating the tenor. Such drafts will be accepted by the drawee and paid for at the end of

the usance period.

Based on mode of payment:

Payment Credit : Under this credit, payment will be made to the beneficiary on submission of the

required documents provided they are in compliance with the LC terms and conditions. Also under

payment credit, the issuing bank, nominates a bank in the exporters country (which is generally a

correspondent bank of issuing bank in that country) to effect payment on its behalf if the documents are in

conformity with the LC. Such correspondent bank later gets reimbursement from issuing bank.

Deferred Payment Credit : This type of credit is a usance credit, where payment is made on the due

dates specified in the credit. However, under this credit, the maturity date and how it is determined

should be clearly indicated. In such credits the drawee bank itself may draw promissory notes and pass

on to the beneficiary for claiming payments on the due dates.

Acceptance Credit : This credit is also a usance credit, where it is mandatory for the beneficiary to draw

a draft on the drawee or specified bank for a specified tenor. The drawee bank will accept such drafts

and make payment on the respective due dates on presentation of relevant bill of exchange.

Negotiation Credit : This credit may be a sight credit or a usance credit. Under a sight credit, payment is

made immediately, while under a usance credit payment is made after a specific tenor. A negotiation

credit mat be freely negotiable in which case the beneficiary may approach any bank for presentation of

documents. This implies that when a credit is freely negotiable, any bank is a nominated bank.


44/95

On the other hand, when a credit is restricted for negotiation, the issuing bank authorizes certain

specified bank as the nominated bank. In such a case, the beneficiary is required to present the stipulated

documents only to such banks as they alone are authorized to negotiate the documents under LC.

Parties to Letters of Credit

A. Applicant (Opener) : Applicant which is also referred to as account party is normally a buyer or

customer of the goods, who has to make payment to beneficiary. LC is initiated and issued at his

request and on the basis of his instructions .

B. Issuing Bank (Opening Bank): The issuing bank is the one which create a letter of credit and

takes the responsibility to make the payments on receipt of the documents from the beneficiary or

through their banker. The payment has to be made to the beneficiary within seven working days

from the date of receipt of documents at their end, provided the documents are in accordance with

the terms and conditions of the letter of credit. If the documents are discrepant one, the rejection

thereof to be communicated within seven working days from the date of receipt of documents at

their end.

C. Beneficiary: Beneficiary is normally stands for a seller of the goods, who has to receive

payment from the applicant. A credit is issued in his favor to enable him or his agent to obtain

payment on surrender of stipulated document and comply with the term and conditions of the L/C

If L/C is a transferable one and he transfers the credit to another party, then he is referred to as the first

or original beneficiary.

C. Advising Bank: An Advising Bank provides advice to the beneficiary and takes the responsibility

for sending the documents to the issuing bank and is normally located in the country of the

beneficiary .


45/95

D. Confirming Bank: Confirming bank adds its guarantee to the credit opened by another bank,

thereby undertaking the responsibility of payment/negotiation acceptance under the credit, in

additional to that of the issuing bank. Confirming bank play an important role where the exporter is

not satisfied with the undertaking of only the issuing bank.

E. Negotiating Bank : The Negotiating Bank is the bank who negotiates the documents submitted to

them by the beneficiary under the credit either advised through them or restricted to them for

negotiation. On negotiation of the documents they will claim the reimbursement under the credit and

makes the payment to the beneficiary provided the documents submitted are in accordance with the

terms and conditions of the letters of credit.

F. Reimbursing Bank: Reimbursing Bank is the bank authorized to honor the reimbursement claim

in settlement of negotiation/acceptance/payment lodged with it by the negotiating bank. It is

normally the bank with which issuing bank has an account from which payment has to be made .

G. Second Beneficiary: Second Beneficiary is the person who represents the first or original

Beneficiary of credit in his absence. In this case, the credits belonging to the original beneficiary is

transferable. The rights of the transferee are subject to terms of transfer.

Rights and Responsibilities of parties involved in LC

The rights and responsibilities of every party associated with an LC have been defined in the

UCPDC 500. It is necessary for every party dealing with an LC, to keep himself informed about

these responsibilities.

All parties dealing with an LC are dealing only with documents and not with good/ services, or

performances to which the documents may relate.

Exporter / beneficiary of LC have a right to receive payment against submission of prescribed

documents under the LC. It is the exporters duty to ship the goods and submit the documents within

the stipulated time for negotiation.

Negotiating Bank: Once documents under the LC are submitted, the negotiating bank has to

ascertain that they appear on their face to be in accordance with the terms and conditions of credit

and if found agreeable, should effect payment as per the LC terms and dispatch documents to the

opening bank as instructed. Once the amount under the LC is paid to the beneficiary, the negotiating


46/95

bank is entitled to get reimbursement from the opening bank, provided that the documents are in

conformity with the LC terms and conditions.

Opening Bank: Once documents under the LC are received from the negotiating bank, it should

scrutinize them, within 7 days from the date of receipt. If it finds any discrepancy, it must convey

the same to the negotiating bank through the fastest means available, advising that, it is holding

documents in want of disposal instructions.

Advising Bank: Once LC opening instructions are received from the opening bank, the advising

bank should, if it so desires to act as advising bank, verify the authenticity of the LC and advise the

beneficiary about the LC and its terms. It is entitled to receive advising charges for having advised

the LC from the LC opening bank.

Confirming bank: If, at the request of the issuing bank, the advising bank chooses to add its

conformity to the LC, it is taking upon itself, the responsibility of paying the beneficiary against the

presentation of stipulated documents. Upon payment, it is entitled to receive reimbursement from the

issuing bank. It is also entitled to receive confirmation charges.

Applicant to the LC: The importer is responsible for making payment under the LC, against

release of stipulated documents, to the opening bank.

How a Letter of Credit Operates?

The following step by step procedure is required to execute a LC:

Buyer and seller enter in to a contract for goods and/or services. The seller wants a letter of credit toensure payment for goods and/or services.

Buyer applies to his bank to open a LC in favor of seller.

Buyers bank issues and forwards the LC to its Advising bank (Correspondent). This Advising bank

is usually located in the sellers country.

Advising bank checks for the authenticity of LC and forward the original LC to the seller.

Seller ships the goods and prepares the required documents.

Seller presents the required documents to the Nominated or Confirming bank to be processed for

payment.

Nominated or Confirming bank examines the documents for compliance with the terms and

conditions stated in the LC.

Nominated or Confirming bank will forward the documents to the issuing bank


47/95

If the documents of credit are in compliance with terms and conditions, the Nominated or

Confirming bank will claim the funds either by:

o Debiting the account of Issuing Bank.

o Claim funds from Issuing Bank.

o Claim for Reimbursing Bank

Issuing bank will examine the documents for compliance and forward the same against payment.

Summary of procedure for LC operation

Source: CDCS Study book [By Institute of Financial Services]

FORMAT OF LETTER OF CREDIT:


48/95


49/95


50/95

FINANCE FROM BANKS AND FINANCIAL INSTITUTIONS

BANK GUARANTEE:

Introduction

A bank guarantee is a written contract given by a bank on the behalf of a customer. By issuing this guarantee, a

bank takes responsibility for payment of a sum of money in case, if it is not paid by the customer on whose

behalf the guarantee has been issued. In return, a bank gets some commission for issuing the guarantee.

Any one can apply for a bank guarantee, if his or her company has obligations towards a third party for which

funds need to be blocked in order to guarantee that his or her company fulfills its obligations (for example

carrying out certain works, payment of a debt, etc.).

In case of any changes or cancellation during the transaction process, a bank guarantee remains valid until the

customer dully releases the bank from its liability.

In the situations, where a customer fails to pay the money, the bank must pay the amount within three working

days. This payment can also be refused by the bank, if the claim is found to be unlawful.

Benefits of Bank Guarantees :

For Government

1. Increases the rate of private financing for key sectors such as infrastructure.

2. Provides access to capital markets as well as commercial banks.

3. Reduces cost of private financing to affordable levels.

4. Facilitates privatizations and public private partnerships.

5. Reduces government risk exposure by passing commercial risk to the private sector.

For Private Sector

1. Reduces risk of private transactions in emerging countries.

2. Mitigates risks that the private sector does not control.


51/95

3. Opens new markets.

4. Improves project sustainability.

Legal Requirements

Bank guarantee is issued by the authorized dealers under their obligated authorities notified vide FEMA 8/ 2000

dated 3 rd May 2000. Only in case of revocation of guarantee involving US $ 5000 or more need to be reported

to Reserve Bank of India (RBI).

Types of Bank Guarantees:

1. Direct or Indirect Bank Guarantee : A bank guarantee can be either direct or indirect.

Direct Bank Guarantee It is issued by the applicant's bank (issuing bank) directly to the guarantee's

beneficiary without concerning a correspondent bank. This type of guarantee is less expensive and is also

subject to the law of the country in which the guarantee is issued unless otherwise it is mentioned in the

guarantee documents.

Indirect Bank Guarantee With an indirect guarantee, a second bank is involved, which is basically a

representative of the issuing bank in the country to which beneficiary belongs. This involvement of a second

bank is done on the demand of the beneficiary. This type of bank guarantee is more time consuming and

expensive too.

2. Confirmed Guarantee

It is cross between direct and indirect types of bank guarantee. This type of bank guarantee is issued directly by

a bank after which it is send to a foreign bank for confirmations. The foreign banks confirm the original

documents and thereby assume the responsibility.

3. Tender Bond

This is also called bid bonds and is normally issued in support of a tender in international trade. It provides the

beneficiary with a financial remedy, if the applicant fails to fulfill any of the tender conditions.


52/95

4. Performance Bonds

this is one of the most common types of bank guarantee which is used to secure the completion of the

contractual responsibilities of delivery of goods and act as security of penalty payment by the Supplier in case

of non-delivery of goods.

5. Advance Payment Guarantees

This mode of guarantee is used where the applicant calls for the provision of a sum of money at an early stage

of the contract and can recover the amount paid in advance, or a part thereof, if the applicant fails to fulfill the

agreement.

6. Payment Guarantees

This type of bank guarantee is used to secure the responsibilities to pay goods and services. If the beneficiary

has fulfilled his contractual obligations after delivering the goods or services but the debtor fails to make the

payment, then after written declaration the beneficiary can easily obtain his money from the guaranteeing bank.

7. Loan Repayment Guarantees

this type of guarantee is given by a bank to the creditor to pay the amount of loan body and interests in case of

non fulfillment by the borrower.

8. B/L Letter of Indemnity

this is also called a letter of indemnity and is a type of guarantee from the bank making sure that any kind of

loss of goods will not be suffered by the carrier.

9. Rental Guarantee

This type of bank guarantee is given under a rental contract. Rental guarantee is either limited to rental

payments only or includes all payments due under the rental contract including cost of repair on termination of

the rental contract.

10. Credit Card Guarantee


53/95

Credit card guarantee is issued by the credit card companies to its customer as a guarantee that the merchant

will be paid on transactions regardless of whether the consumer pays their credit.

How to Apply for Bank Guarantee

Procedure for Bank Guarantees is very simple and is not governed by any particular legal regulations. However,

to obtained the bank guarantee one need to have a current account in the bank. Guarantees can be issued by

bank through its authorized dealers as per notifications mentioned in the FEMA 8/2000 date 3rd May 2000.

Only in case of revocation of guarantee involving US $ 5000/ or more to be reported to Reserve Bank of India

along with the details of the claim received.

Bank Guarantees vs. Letters of Credit

A bank guarantee is frequently confused with letter of credit (LC), which is similar in many ways but not the

same thing. The basic difference between the two is that of the parties involved. In a bank guarantee, three

parties are involved; the bank, the person to whom the guarantee is given and the person on whose behalf the

bank is giving guarantee. In case of a letter of credit, there are normally four parties involved; issuing bank,

advising bank, the applicant (importer) and the beneficiary (exporter).

Also, as a bank guarantee only becomes active when the customer fails to pay the necessary amount where as in

case of letters of credit, the issuing bank does not wait for the buyer to default, and for the seller to invoke the

undertaking


54/95

INCOTERMS:

Incoterms or international commercial terms are a series of international sales terms, published by

International Chamber of Commerce (ICC) and widely used in international commercial

transactions. They are used to divide transaction costs and responsibilities between buyer and

seller and reflect state-of-the-art transportation practices. They closely correspond to the U.N.

Convention on Contracts for the International Sale of Goods. The first version was introduced

in 1936 and the present dates from 2000.

Notes on Incoterms

1. Underlying Contract Incoterms were designed to be used within the context of a written

contract for the sale of goods. Incoterms, therefore, refer to the contract of sale, rather than the

contract of carriage of the goods. Buyers and sellers should specify that their contract be

governed by Incoterms 2000.

2. EXW and FCA If you buy Ex Works or Free Carrier you will need to arrange for the

contract of carriage. Also, since the shipper will not receive a bill of lading, using a letter of

credit requiring a bill of lading will not be possible.

3. EDI: Electronic Data Interchange It is increasingly common for sellers to prepare and

transmit documents electronically. Incoterms provides for EDI so long as buyers and sellers

agree on their use in the sales contract.4. Insurable Interest Note that in many cases either the buyer or the seller is not obligated to

provide insurance. In a number of cases neither party is obligated to provide insurance.

However, both the seller and buyer should be aware that they may have insurable interest in the

goods and prudence dictates purchase of insurance coverage.

5. Customs of the Port or Trade Incoterms are an attempt to standardize trade terms for all


55/95

nations and all trades. However, different ports and different trades have their own customs

and practices. It is best if specific customs and practices are specified in the sales contract.

6. Precise Point of Delivery In some cases it may not be possible for the buyer to name the

precise point of delivery at contract. However, if the buyer does not do so in a timely manner,

it may give the seller the option to make delivery within a range of places that is within the

terms of the contract. For example, the original terms of sale may state CFR Port of

Rotterdam. The Port of Rotterdam is huge and the buyer may find that a particular point

within the port is best and should so state in the sales contract and in the trade term. Also,

since the buyer becomes liable for the goods once they arrive, he or she may be responsible

for unloading, storage and other charges once the goods have been made available at the place

named.

7. Export and Import Customs Clearance It is usually desirable that export customs

formalities be handled by the seller and import customs formalities be handled by the buyer.

However, some trade terms require that the buyer handle export formalities and others require

that the seller handle import formalities. In each case the buyer and seller will have to assume

risk from export and import restrictions and prohibitions. In some cases foreign exporters may

not be able to obtain import licenses in the country of import. This should be researched

before accepting final terms.

8. Added Wording It is possible, and in many cases desirable, that the seller and buyer agree

to additional wording to an Incoterm. For example, if the seller agrees to DDP terms, agreeing

to pay for customs formalities and import duties, but not for VAT (Value Added Taxes) the

term DDP VAT Unpaid may be used.

9. Packing It is the responsibility of the seller to provide packaging unless the goods shipped

are customarily shipped in bulk (usually commodities such as oil or grain). In most situations

it is best if the buyer and seller agree in the sales contract on the type and extent of packing

required. However, it may not be possible to know beforehand the type or duration of

transport. As a result, it is the responsibility of the seller to provide for safe and appropriate

packaging, but only to the extent that the buyer has made the circumstances of the transport

known to the seller beforehand.

If the seller is responsible for packing goods in an ocean or air freight container it is also his

responsibility to pack the container properly to withstand shipment.

10. Inspection These are several issues related to inspections: a) the seller is responsible for


56/95

costs of inspection to make certain the quantity and quality of the shipment is in conformity

with the sales contract, b) pre-shipment inspections as required by the export authority are the

responsibility of the party responsible for export formalities, c) import inspections as required

by the import authority are the responsibility of the party responsible for import formalities,

and d) third-party inspections for independent verification of quality and quantity (if required)

are generally the responsibility of the buyer. The buyer may require such an inspection and

inspection document as a condition of payment.

11. Passing of Risks and Costs the general rule is that risks and costs pass from the seller to the

buyer once the buyer has delivered the goods to the point and place named in the trade term.

TERMS EXPLANATION:

Group F Main carriage unpaid

FCA Free Carrier (named place)

The seller hands over the goods, cleared for export, into the custody of the first carrier (named by the

buyer) at the named place. This term is suitable for all modes of transport, including carriage by air, rail,

road, and containerized / multi-modal transport.

FAS free alongside Ship (named loading port)

The seller must place the goods alongside the ship at the named port. The seller must clear the goods for

export; this changed in the 2000 version of the Incoterms. Suitable for maritime transport only.

FOB Free on board (named loading port)

The seller must load the goods on board the ship nominated by the buyer, cost and risk being divided at

ship's rail. The seller must clear the goods for export. Maritime transport only. It also includes Air

transport when the seller is not able to export the goods on the schedule time mentioned in the letter of

credit. In this case the seller allows a deduction of sum equivalent to the carriage by ship from the air

carriage.

Group C Main carriage paid

CFR or CNF Cost and Freight (named destination port)

Seller must pay the costs and freight to bring the goods to the port of destination. However, risk is

transferred to the buyer once the goods have crossed the ship's rail. Maritime transport only.
http://en.wikipedia.org/wiki/Free_on_boardhttp://en.wikipedia.org/wiki/Free_on_board


57/95

CIF Cost, Insurance and Freight (named destination port)

Exactly the same as CFR except that the seller must in addition procure and pay for insurance for the buyer.

Maritime transport only.

CPT Carriage Paid To (named place of destination)

The general/containerized/multimodal equivalent of CFR. The seller pays for carriage to the named

point of destination, but risk passes when the goods are handed over to the first carrier.

CIP Carriage and Insurance Paid (To) (named place of destination)

The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the

named destination point, but risk passes when the goods are handed over to the first carrier.

Group D Arrival

DAF Delivered At Frontier (named place)

This term can be used when the goods are transported by rail and road. The seller pays for transportation

to the named place of delivery at the frontier. The buyer arranges for customs clearance and pays for

transportation from the frontier to his factory. The passing of risk occurs at the frontier.

DES Delivered Ex Ship (named port)

Where goods are delivered ex ship, the passing of risk does not occur until the ship has arrived at the

named port of destination and the goods made available for unloading to the buyer. The seller pays the

same freight and insurance costs as he would under a CIF arrangement. Unlike CFR and CIF terms, the

seller has agreed to bear not just cost, but also Risk and Title up to the arrival of the vessel at the named

port. Costs for unloading the goods and any duties, taxes, etc are for the Buyer. A commonly used

term in shipping bulk commodities, such as coal, grain, dry chemicals - - - and where the seller either

owns or has chartered, their own vessel.

DEQ Delivered Ex Quay (named port)

This is similar to DES, but the passing of risk does not occur until the goods have been unloaded at the

port of destination.

DDU Delivered Duty Unpaid (named destination place)

This term means that the seller delivers the goods to the buyer to the named place of destination in the

contract of sale. The goods are not cleared for import or unloaded from any form of transport at the

place of destination. The buyer is responsible for the costs and risks for the unloading, duty and any

subsequent delivery beyond the place of destination. However, if the buyer wishes the seller to bear cost


58/95

and risks associated with the import clearance, duty, unloading and subsequent delivery beyond the

place of destination, then this all needs to be explicitly agreed upon in the contract of sale.

DDP Delivered Duty Paid (named destination place)

This term means that the seller pays for all transportation costs and bears all risk until the goods have

been delivered and pays the duty. Also used interchangeably with the term "Free Domicile". The most

comprehensive term for the buyer. In most of the importing countries, taxes such as (but not limited to)

VAT and excises should not be considered prepaid being handled as a "refundable" tax. Therefore VAT

and excises usually are not representing a direct cost for the importer since they will be recovered

against the sales on the local (domestic) market.


59/95

RISK INVOLVED IN EXPORT

1. TRADE TRANSPORT RISK:

Introduction

It is quite important to evaluate the transportation risk in international trade for better financial stability of export

business. About 80% of the world major transportation of goods is carried out by sea, which also gives rise to a number of

risk factors associated with transportation of goods.

The major risk factors related to shipping are cargo, vessels, people and financing. So it becomes necessary for the

government to address all of these risks with broad based security policy responses, since simply responding to threats in

isolation to one another can be both ineffective and costly.

While handling transportation in international trade following precaution should be taken into consideration.

In case of transportation by ship, and the product should be appropriate for containerization. It is

worth promoting standard order values equivalent to quantities loaded into standard size

containers.

Work must be carried out in compliance with the international code concerning the transport of

dangerous goods.

For better communication purpose people involve in the handling of goods should be equipped

with phone, fax, email, internet and radio.

About the instructions given to the transport company on freight forwarder.

Necessary information about the cargo insurance.

Each time goods are handled; there risk of damage. Plan for this when packing for export, and

deciding on choice of transport and route.


60/95


61/95

letters of Credit will require an individual insurance policy to be issued for the shipment, while others accept an

insurance certificate.

Specialist Covers

Whereas standard marine/transport cover is the answer for general cargo, some classes of business will have

special requirements. General insurer may have developed specialty teams to cater for the needs of this

business, and it is worth asking if this cover can be extended to export risks.

Cover may be automatically available for the needs of the trade.

Example of this are:

Project Constructional works insurers can cover the movement of goods for the project.

Fine art

Precious stones Special Cover can be extended to cover sending of precious stones.

Stock through put cover extended beyond the time goods are in transit until when they are used at the

destination.

Seller's Buyer's Contingent Interest Insurance

An exporter selling on, for example FOB (INCOTERMS 2000) delivery terms would according to the contract

and to INCOTERMS, have not responsibility for insurance once the goods have passed the ship's rail. However,

for peace of mind, he may wish to purchase extra cover, which will cover him for loss or will make up cover

where the other policy is too restrictive. This is known as Seller's Interest Insurance.

Similarly, cover is available to importers/buyers.

Seller's Interest and Buyer's Interest covers usually extended cover to apply if the title in the goods reverts to

the insured party until the goods are recovered resold or returned.

Loss of Profits/ Consequential Loss Insurance

Importers buying goods for a particular event may be interested in consequential loss cover in case the goods

are late (for a reason that id insured) and (expensive) replacements have to be found to replace them. In such

cases, the insurer will pay a claim and receive May proceeds from the eventual sale of the delayed goods.

2. CREDIT RISK:


62/95

Introduction

Contract risk and credit risk are the part of international trade finance and are quite different from each other. A

contract risk is related to the Latin law of "Caveat Emptor", which means "Buyer Beware" and refers directly to

the goods being purchase under contract, whether it's a car, house land or whatever. On the other hand a credit

risk may be defined as the risk that a counter party to a transaction will fail to perform according to the terms

and conditions of the contract, thus causing the holder of the claim to suffer a loss.Banks all over the world are

very sensitive to credit risk in various financial sectors like loans, trade financing, foreign exchange, swaps,

bonds, equities, and inter-bank transactions.

Credit Insurance

Credit Insurance is special type of loan which pays back a fraction or whole of the amount to the borrower in

case of death, disability, or unemployment. It protects open account sales against nonpayment resulting from a

customer's legal insolvency or default. It is usually required by manufacturers and wholesalers selling products

on credit terms to domestic and/or foreign customers.

Benefits of Credit Insurance:

1. Expand sales to existing customers without increased risk.

2 Offer more competitive credit terms to new customers in new markets.

3. Help protect against potential restatement of earnings.

4. Optimize bank financing by insuring trade receivables.

5. Supplement credit risk management.

Payment Risk

This type of risk arises when a customer charges in an organization or if he does not pay for operational

reasons. Payment risk can only be recovered by a well written contract. Recovery cannot be made for payment

risk using credit insurance.

Bad Debt Protection

A bad debt can affect profitability. So, it is always good to keep options ready for bad debt like Confirmation of

LC, debt purchase (factoring without recourse of forfeiting) or credit insurance.


63/95

Confirmation of LC

In an international trade, the confirmation of letter of credit is issued to an exporter or seller. This confirmation

letter assures payment to an exporter or seller, even if the issuing bank defaults on its payment once the

beneficiary meets his terms and conditions.

Factoring and Forfeiting

Where debt purchase is without recourse, the bank will already have advanced the funds in the debt purchase

transaction. The bank takes the risk of nonpayment.

Credit Limit

Companies with credit insurance need to have proper credit limits according to the terms and conditions. This

includes fulfilling the administrative requirement, including notification of overdoes and also terms set out in

the credit limit decision.

Payment of the claim can only be done after a fix period, which is about 6 months for slow pay insurance. In

case of economic and political events are six or more than six months, depending on the exporter market?

Credit insurance covers the risk of non-payment of trade debts. Each policy is different, some covering only

insolvency risk on goods delivered, and others covering a wide range of risk such as:

Local sales, export sales, or both.

Protracted default.

Political risk, including contract frustration, war transfer.

Pre-delivery risks.

Cover for sales from stock. Non -honoring of letters of credits.

Bond unfair calling risks.

Like all other insurance, credit insurance covers the risk of fortuitous loss. Key features of credit insurance are:


64/95

The company is expected to assess that its client exists and is credit worthy. This might be by using a

credit limit service provided by the insurer. A Credit limit Will to pay attention to the company's credit

management procedures, and require that agreed procedures manuals be followed at all times.

While the credit insurer underwrites the risk of non-payment and contract frustration the nature of the

risk is affected by how it is managed. The credit insurer is likely to pay attention to the company's credit

managements procedures, and require that agreed procedures manuals be followed at all times.

The credit insurer will expect the sales contract to be written effectively and invoices to be clear.

The company will be required to report any overdue or other problems in a timely fashion.

The credit insurer may have other exposure on the same buyers or in the same markets. A company will

therefore benefit if other policyholder report that a particular potential customer is in financial

difficulties.

In the event that the customer does not pay, or cannot pay, the policy reacts. There may be a waiting

period to allow the company to start collection procedures