International Trade Finance

Associate Banking Diploma — Core Subject International Trade Finance
Objective To enable candidates: • To understand the ways in which international trade is undertaken, settled and financed; • To appreciate the types of customers engaged in international trade and their needs; • To understand the features and benefits of services provided by banks, building societies and other resources; • To understand the international payment systems that are in place and the regulations and procedures adopted; • To recognise the terminology used in international trade and be aware of the content and use of documentation.
Note Candidates are advised to study the following subjects prior to sitting this paper: • Law Relating to Banking Services • The Monetary and Financial System.
• SYLLABUS
1. The Meaning of International Trade Finance Payment and Risk Management Services
1.1	The meaning of international trade finance. Types of customers in Tanzania and abroad including service companies, exporters, importers, merchants/traders and companies with domestic trade and overseas representation; their needs and the opportunities to banks and other sources that these present.
1.2	Advantages and disadvantages of settlement in foreign currencies. Rates of exchange. Factors which affect the movement of rates. Protection against exchange risks. Mechanics of forward contracts. The utilisation of foreign currency accounts for matching foreign currency positions. Foreign currency borrowing/deposits and pure currency options (in general terms only). Eurocurrency rates. The European Monetary System (EMS); the Exchange Rate Mechanism (ERM); the European Currency Unit (ECU). The implications of European Monetary Union (EMU) and a single currency.
1.3	Payment, settlement and clearing systems in shilling and foreign currency, including CHAPS. Electronic banking systems necessary to provide international trade finance to customers. International payments systems: cheques, drafts, mail and telegraphic payment orders (including express money transfers), SWIFT and International Money Orders; nostro and vostro accounts and procedures (in general terms). Electronic banking services including giro and credit cards and means of making regular payments. Regulations to prevent fraud and money laundering. Payment and collection services available from banks abroad.
1.4	Commercial terms, including INCOTERMS, used in the delivery of goods and for payments in domestic and international trade; responsibilities of the parties involved.
1.5	Types and uses of bills of exchange; features and functions of basic shipping, transport and insurance documents used in international trade. Control and transfer of ownership of goods and insurance. Implications of Electronic Data Interchange (EDI).
1.6	Risks inherent in granting periods of credit in connection with trade dependent on the particular terms of payment, including open account trading. Protection against credit, political and economic risks by means of private insurance. Bank undertakings as a means of securing and obtaining payment, including documentary letters of credit, guarantees, standby letters of credit and guaranteed bills of exchange.
1.7	Collection of cheques and bills of exchange, both clean and documentary. Terminology and procedures. The role of banks (a detailed knowledge of Uniform Rules for Collections and the relevant features of the Bills of Exchange Act).
1.8	The main types of documentary letters of credit and their documentary requirements and operation. Liabilities and responsibilities of banks (a detailed knowledge of Uniform Customs and practice for Documentary Credits is expected).
2. Financial Services
2.1	Documentary letters of credit as a means of obtaining finance or providing credit; the financial uses of credits including acceptance/deferred payment credits, discounting and forfeiting; red clause letter of credit, transferable and back-to-back credits, revolving and reinstatement letters of credit.
2.2	The different types of short-term export finance, including overdrafts and loans, taking into account security considerations and recourse. The provision of pre-shipment finance by banks against acceptable bills of exchange, letters of credit or commercial contracts. Short-term export finance utilising the benefits of credit insurance policies in favour of banks. Assignment and management policies. Foreign cheques, domestic or foreign bills of exchange, negotiation, advances and discounting; liabilities of parties involved. Bills of exchange guaranteed by banks by means of avalisation or alternatively bank acceptances. Discounting and forfeiting arrangements.
2.3	Other forms of short-term financing from banks and other sources, including the banks’ confirming houses and factoring and invoice discounting subsidiaries.
2.4	Finance against ECDG schemes. The banks’ medium-term schemes with or without ECGD cover, including the Supplier Credit Financing Facility (SCF) and buyer credits, lines of credit facilities, leasing, forfeiting and export finance houses.
2.5	Different types of bank guarantees and bonds as a means of providing finance. Support available from insurance companies. Standby letter of credit. Import financing, including produce/merchandise advances by means of overdrafts and loans against the security of goods; documentation required by banks (an appreciation only). Other forms of import financing, including clean acceptance credits, import factoring, import finance houses and hire purchase. Indemnities and guarantees, including VAT deferment. Considerations when handling inward bills and issuing documentary letters of credit.
3. Methods of Trading; Trade Promotion; Assistance/ Advice from Banks and other Sources
3.1	Methods by which international trade may be conducted including: - direct/indirect exports, merchanting, - export of services, - countertrade (including barter and compensation trade and other similar schemes) in general terms only.
3.2	Overseas representation, including agents and distributors, international franchising and licensing operations - in general terms only. Trade promotion services from banks and other sources to develop trade and investment in Tanzania, including services for customers new to international trade. International services from banks, including trade opportunities, letter of introduction, sources of information/advice, using correspondent banks, including status reports, economic conditions, entry to overseas markets, etc.
3.3	Assistance/advice available from government, particularly Overseas Trade Services (FCO and DTI) and other sources of help (in general terms only).
3.4	Business travel arrangements: the provision of cash, travellers cheques, etc., appropriate to customer needs.
3.5	Banking services available from banks and other sources abroad, particularly in other European countries. Techniques of international trade finance that can be utilised in domestic trade.
THE EXAMINATION Time Allowed: Three hours. 15 minutes reading time is allowed before start of the examination. Examination format: The paper is divided into three sections with the three sections of the syllabus. Section A - 4 questions, candidates to attempt three, Sections B & C consist of two questions each, candidates should attempt one question from each section. RECOMMENDED READING 1. TIOB (2003) International Trade Finance - Colour Print, Dar es Salaam 2. A J W Watson Finance of International Trade (CIB/ Bankers Books) 3. D B Cox Trade Finance - Payments and Services: Personal Course for Bankers (Northwick Publishers) 4. BPP Trade Finance: Payments and Services: Study Text (BPP Publishing) 5. B J Beecham & D P Whiting Trade Finance - Payments and Services (Pitman) 6. International Chamber of Commerce Guide to Documentary Credit Operations (ICC No. 415)