Customs shipping
1. Your management wants to give an
induction to the newly joined staff in Import Export dept. Your boss asked you
to prepare a write up on the customs tariff giving details of number of
sections, chapters, in a simple language to train the new staff. Please give a
nice write up explaining the chapters, sections etc.
Answer: As per Customs Act the duties are to be levied on imported
goods as per the rates mentioned in the First and Second Schedule of Customs
Act called “Import Tariff” and “Export Tariff” respectively. Export Tariff is
very limited and applied on very limited items. But, Import tariff is
exhaustive. The Tariffs are based on Harmonized System (HS).
The Tariff includes the following
parts.
– Headings
– Section and Chapter Notes
– General Rules of Interpretation
The Headings: All the items are classified in 98
chapters. The basis of classification in the chapter is the raw material e.g.
2. Your friend is a merchant
exporter trading many items, and export them to various countries, He has
received an order for export consisting of many electronic items manufactured
by multiple manufacturers. They are very sensitive products and damage prone
also. The total number of boxes is around 2000 and are of assorted sizes. He is
seeking your advice on the method of export i.e. whether to get the containers
to his warehouse and load them or to take all boxes to the port and get the
container stuffed. With your knowledge and experience please give a valuable
suggestion to your friend and explain the reasons for your options.
Answer: Packaging has assumed an important function for the
preservation of the goods as well as for the reduction of cost of the products.
It may be viewed as consisting of two distinct types: (i) industrial (exterior)
and (ii) consumer (inferior). Consumer packaging is designed for the purpose of
affecting sales acceptance. The aim of industrial packaging is to prepare and
protect merchandise for shipment and storage and this type of packaging
accounts for 7 cents of each retail dollar as well as 30% of the packaging
costs. Packing is even more critical for overseas shipment than for domestic
shipment because of the longer transit time and a greater number of hazards.
Although over packaging is undesirable, so
3. One of your imported cargo got
cleared from the customs and enroute your factory the truck got completely wet
due to heavy rain in spite of the truck covered with tarpaulin. Your quality
control dept. inspected the cargo at the factory and rejected the same. Now You
need to recover the entire cost from the insurance. Your boss advises you to
sell the cargo in scrap and claim insurance immediately.
a. Is it right to dispose the cargo
before insurance survey? Please explain to the management the process of
insurance claim as undue pressure on you will not work
b. Please explain the documental
procedure to file a claim to your management so that you will get some time to
complete the process
Answer: a) Insurance is the equitable transfer of the risk of a loss
or damage from one entity to another in exchange for payment. It is a form of
risk management primarily used to hedge against the risk of a contingent,
uncertain loss. In this case, Marine insurance would be appropriate.
The exporter faces the risk of loss/damage to the goods
during transportation from his place to the place of the buyer. This is known
as cargo risk. In international trade the transit distance and period involved
are long. Sometime the transportation may involve more than one means of
transportation which further increases the risk to cargo. Therefore, it is
quite obvious that no shipment should be left uninsured. The banks that extend
export finance also require marine insurance policies as collateral to cover
their risk. From buyer’s point of view; it becomes necessary as in case goods
are destroyed during transit, he will be deprived of expected profit on sale.
The limited liability of the carrier which may not compensate the losses, also
necessitates the requirement of cargo
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Export Import
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1. You have joined an organization
as a Head of Export Import dept. Company is in the process of preparing an
operation manual and asks you to prepare a list of documents required for
Import. You need to give an elaborate list so as to cover major areas of
imports. Also you have to give the importance of documents and the problems in
customs in case of submission of incomplete documentation. Please submit your
list and details to the Management.
Answer: List of
documents for import
There may have bilateral import export agreements between
governments of different countries. Imports and exports from such countries may
have exemptions on documentation for export and import clearance. However, there
are legal documents, common documents and specific documents on commodity basis
required to complete import customs procedures.
Bill of Entry
There are three types of Bill of Entry:
●
White Bill of Entry or “Home Consumption B/E”.
●
Yellow Bill of Entry or “Warehouse B/E.
●
Green Bill of Entry or “Ex-bond B/E”.
B/E must be presented to the customs for “Noting” in the
Import Deptt. Of Customs House after the item-wise document called “Import’
General
2. You have an export order of one
consignment of 40’ container to Malaysia. As the profit margin is not very high
your organization advises you to achieve cost reduction in the freight and
customs clearance so that some money can be still saved. This is really
challenging as the freight charges are dynamic based on the market. Please give
a best shot and explain how will you achieve some cost reduction in freight and
customs clearance?
Answer: Exporting a product or service is a profitable method. It
helps in expanding the business and cuts the reliance upon the local market.
Further, it provides new management practices, ideas, marketing techniques and
means of competition that are not available in the domestic market. Even if a
local businessman is comfortably placed in a domestic market, he should think about
exporting options to
3. Due to heavy rain in Mumbai
airport your cargo got damaged completely. Your consignment was under water for
3 days and customs has asked you clear the consignment as the water got drained
out of cargo complex. Your company has understood that the consignment got
damaged and cannot be used for production. They are asking you the following
queries:
a. Is it good to clear the
consignment and claim insurance?
b. Is it better to abandon the
consignment and claim insurance?
You need to give the advantages and
disadvantages of taking the above actions. Kindly advise the management
suitably with your experience
Answer: a) Imports form a vital component in the growth of a
country be it a developed or developing country. For developed countries,
import of technology, raw materials and capital goods is required for
sustaining the optimum level of production. This assists the developed
countries to meet the demand requirements of their consumers to sustain a high
standard of living. On the other hand, developing countries require imports in
the area of technology and capital equipment. This helps in accelerating the
pace of development in these countries.
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India’s Foreign Trade
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1. Sneha, an entrepreneur in the
field of handicraft quite successful in the domestic market, she has ambition
to expand her business further through Exports; what are your recommendations
for this entrepreneur to get into International business successfully. Give
complete details of market entry and expansion strategy.
Answer: Entry modes may vary from company to company or even for a
single company depending upon a variety of factors as discussed below:
●
Size of the company – Generally, larger
companies have large financial resources and manpower skill to handle
international operations in a competitively better manner. Therefore, they
●
2. Export Promotion Councils (EPC)
set-up by Ministry of Commerce, government of India are very beneficial to
MSME, explain how EPC is beneficial to handicraft exports.
Answer: Exports are vital to a developing economy as the capacity
to import is limited by the capacity to export because finally imports have to
be paid for by exports. The growing industrialization of a developing country
necessitates increasing imports because of high income elasticity of demand for
imports and the increasing demand associated with industrialization and it is
in this context that economic growth becomes dependent on the rate at which
exports can be expanded.
Export Promotion Councils
In India there are 19 Export Promotion Councils managing the
following products: Apparels; Basic Chemicals; Pharmaceuticals and Cosmetics
Chemicals and Allied Products; Carpet; Cashew; Cotton Textiles; Electronics and
Computer Software; Engineering; Gems and Jewellery; Handicrafts; Handlooms;
Leather; Overseas Construction; Plastics and Linoleums; Shellac; Silk;
Synthetic and Rayon Textiles; Sports Goods and Wool and Woolens. Such councils
are non Export- profit making
3.
One of the well-established Indian leather manufacturing company engaged in
manufacturing of various leather products who are looking into enter
international market mainly USA and European countries
a. What are your recommendations to
this company prior to entering overseas market with their leather products from
the point of regulatory requirements? (5 Marks)
b. Work out a market entry strategy
for overseas market for their leather products; do you recommend direct exports
or merchant exports and explain reasons for your recommendations.
Answer: a) The legal and regulatory environment is the result of a
particular political system. It plays a pivotal role in the growth of a
country’s economy. This environment provides a framework that enables the
development of sustainable markets, facilitates monitoring and enforcement of
rules and ensures investor protection.
Every country has its own legal forms of organizations to
deal with business. The internationally active companies find themselves in a
situation where they have to conform to more than one legal system. Although
this is complex enough, the difficulty of determining which laws apply in
different cases adds further to an already complex environment. There are
specific legal requirements covering certain aspects of international marketing
for the consideration at the corporate level. There are two major legal
systems, namely, common law and statute law. A common
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Course- Insurance and risk management
Internal Assignment Applicable for
December 2019 Examination
1.Mr. Rohan is appointed as the risk
manager in a reputed insurance firm. Discuss the strategy on how he could
mitigate risk using different technique of risk management.
Answer: Losses and the cost of managing risks reduces the
profitability of the business. Therefore, that profitability depends on
eliminating or reducing the cost of losses and of managing the risks. The
process of identification, analysis and either acceptance or mitigation of
uncertainty in investment decision-making refers to risk management in
business. Risk management involves essential features such as reliable
resources, financial strategies and foresight. It prevents or reduces the
possibility of external as well as internal risks in business by employing
intelligent strategies, and thus forms an integral part of business or
investment.
Hence risk management is required in
the organisation for the following purposes:
●
To identify the risk in business activities and establish a plan
to manage risk and minimise the negative effects.
●
To improve the efficiency of strategic and business plans, and
effective use of resources among the stakeholders in
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2. Sheetal and her husband are
working in a reputed multinational company. They both are well settled and are
maintaining a decent lifestyle. Since they are working for the private company,
their parents asked them to buy a retirement plan which can compensate their
lifestyle even after their retirement. Assume yourself to be sheetal’s
insurance advisor. Discuss the three broad steps which you will consider for
managing their retirement Plan.
Answer: Steps for
managing the retirement plan
Understanding the retirement phase
One of the most important events in our life is retirement.
From both personal and financial perspectives, realising a relaxed and
comfortable retirement life is an extensive process and this process takes
years of sensible and persistent planning. Once this planning process is done;
managing your retirement expenses is an on-going process. Though all of us like
to retire comfortably, the complexity involved and time utilised for building a
successful retirement plan makes the whole process complex. Managing your
savings is important in early retirements.
Retirement can be a rewarding phase of your life. Thinking
about retirement in advance will help you to anticipate your future changes and
gain a sense of control over the future. The retirement planning rules are
3. Which method of premium
calculation would be used in each of the below cases:
a. Same rate of premium is charged
from individuals under the same situation
b. Method frequently used by
commercial fire insurance companies
Answer: a) Following are various methods to calculate the premium
to be charged from individuals in different situations:
●
Yearly renewable term
life insurance: This
plan provides coverage for one year only but guarantees renewal irrespective of
the insurability of the policy owner. Premium depends on the rate of mortality.
As age increases, premium rate increases. Therefore, there is a possibility
that those in good health discontinue the policies because of burdensome
premium.
●
Single premium term life
plan: In this system, premium
will not increase year after year. Only one single lumpsum is collected at the
inception to cover risk for the selected period of insurance. The single
premium will be equal to the present value of total death claims anticipated to
be paid by the insurer over the period of insurance is calculated at a
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Course- International banking
Internal Assignment Applicable for
December 2019 Examination
1. A dealer has the following
position in GBP against INR:
Spot – GBP 20 million Long
Three months forward – GBP 20
million short
The spot was executed at an average
rate of 100.50 and the forward rate was 100.75.
The dealer now wants to close his
position. If the prevailing swap quotes are as follows, what is the profit/loss
in squaring off his position?
GBP/INR Spot: 100.6510/100.6530
3-month Swap: 9135/9170
Answer: The spot forward position can be closed by undertaking an
FX swap. The dealer can undertake an FX swap to spot sell GBP 20 million and
forward buy for the same amount.
Let the settlement rate for the spot transaction be
mid-rate. The spot rate applicable will be 100.6520. The forward leg of the
swap will be executed at the swap offer points of 9170. This implies an
outright forward rate of (100.6520 + 0.9170 = 101.5690).
The cash flows will be as
2. Mr. Mehta was a businessman and
was planning to expand his operations to other countries as well but he was not
very sure about the forex market and also how his business would get affected
by various factors. He decided to meet a bank manager who can help him understand
these factors. If you are the manager help him understand the various factors
that would cause the fluctuation in the exchange rate which may affect his
business as well.
Answer: Exchange rates respond quickly to all sorts of events -
both economic and noneconomic. The movement of exchange rates is the result of
the combined effect of a number of factors that are constantly at play.
Economic factors, also called fundamentals, are better guides as to how a
currency moves in the long run. Short-term changes are affected by a multitude
of factors which may also have to be examined carefully. In recent years,
global interdependence has increased to an unprecedented degree. Changes in one
nation's economy are rapidly transmitted to that nation's trading partners.
These fluctuations in economic activity are reflected almost immediately in
fluctuations of currency values. These changes in exchange rates expose all
3. Neha has completed her MBA and
has joined the Treasury department of a bank. During training her manager
explained her that any open currency position may give rise to exchange rate
risks. If the dealer leaves this position unhedged, he carries the risk that
the exchange rate might turn adverse the next day. He wanted her to prepare
report on:
a) Position limits on a currency
that a dealer can carry during regular trading hours.
b) Position limits on a currency
that a dealer can carry over to the next day up to this limit.
Answer: a) An open position refers to any currency exposure that
remains unhedged. If the dealer leaves this position unhedged, he carries the
risk that the exchange rate might turn adverse the next day. It is necessary
that these open positions in several currencies be monitored for acceptable
market risk. The treasury front office is responsible for maintaining and
managing all the forex open positions of the bank. The currency positions
should be within the approved limits established by the risk management
division of the bank. Apart from spot exchange position, dealers would also
have positions in forward markets with different maturities.
For regulatory purposes, the net open position is calculated
as follows:
Net open position in any currency = Net spot position
(assets less liabilities including accrued income and expenditure) + Net
forward position (forward assets less forward liabilities including swaps,
options, futures, etc.) + Unsettled spot contracts (spot asset less spot
liability positions) + Crystallised off-balance sheet
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Course-Treasury management
Internal Assignment Applicable for
December 2019 Examination
1. Explain the process (in terms of
Risk/ Returns/ Ratings etc.) to select bonds in both Rising and declining
interest rates scenarios. Select one bond each from the below bonds with long
term and short term maturities (eg 10 years as long term bond and 1-3 years as
short term bond) and evaluate their risk/ return parameters such as Maturity,
YTM etc. Suggest which of these will outperform/ underperform in current
interest rate scenarios. (Assume interest are being paid annually)
|
Symbol
|
Coupon Rate
|
YTM
|
Face Value
|
Last Traded Price
|
Maturity Date
|
|
NHAI
|
8.3
|
5.6384
|
1,000
|
1,235.00
|
25-Jan-27
|
|
NHAI
|
8.2
|
5.6276
|
1,000
|
1,133.00
|
25-Jan-22
|
|
SBIN
|
9.95
|
7.886
|
10,000
|
11,445.00
|
16-Mar-26
|
|
IRFC
|
8
|
5.1262
|
1,000
|
1,137.00
|
23-Feb-22
|
|
IIHFL
|
12
|
14.6823
|
1,000
|
992.5
|
2-Apr-20
|
|
IIFCL
|
8.66
|
6.034
|
1,000
|
1,152.11
|
22-Jan-24
|
|
HUDCO
|
7.64
|
5.9595
|
1,000
|
1,180.00
|
8-Feb-31
|
|
IIFCL
|
8.91
|
5.8239
|
1,000
|
1,350.00
|
22-Jan-34
|
|
M&MFIN
|
9
|
9.0053
|
1,000
|
1,022.01
|
6-Jun-26
|
Answer: Bonds are long-term debt instruments/fixed income (debt)
instruments issued by government agencies or big corporate houses to raise
large sums of money. They can also be referred as negotiable promissory notes
that can be used by individuals, business firms, governments, or government
agencies. Bonds issued by government agencies or public sector
companies are generally secured and those issued by private
sector companies may be secured or unsecured. The rate of interest on bonds is
fixed, and they are redeemable after a specific period. The expected cash flow
consists of annual interest payments plus repayment of principal.
Unlike stocks, bonds can vary significantly
2. Explain ALM process in banks.
Discuss the impacts of Positive and Negative Gaps on the profitability of a
bank in different interest rates scenarios. You are required to analyze the
above impact with the help of following balance sheet excerpts of a bank:
TABLE GIVEN BELOW
|
Balance Sheet for
Hypothetical Bank
|
|||||||
|
Particulars
|
Assets
|
Yield
|
Liabilities
|
Cost
|
|||
|
Rate sensitive
|
500
|
8.00%
|
600
|
4.00%
|
|||
|
Fixed rate
|
350
|
11.00%
|
220
|
6.00%
|
|||
|
Non-earning
|
150
|
100
|
|||||
|
Equity
|
80
|
||||||
|
1000
|
1000
|
||||||
Scenarios for Impact analysis:
1.Interest rates increased by 1%
2.Interest rates decreased by 1%
Answer: Asset Liability Management (ALM) is a strategic plan
implemented by a bank to control the variation in the interest rate of its
earnings and liabilities on assets. ALM deals with strategic balance sheet
management which involves the various risks caused due to the changes in
exchange rates and the position of liquidity, interest rates in the
organisation. The advantages of ALM are as
3. Case Study:
While current accounts and savings
accounts have different objectives, the banks stand to benefit from the low
cost of servicing these deposits. In the current scenarios it has been observed
that private banks such as HDFC bank, Kotak bank etc. are able to raise higher
saving account / current account deposits compared to their PSU counterparts.
Also the other income is now becoming more significant as a % share of total
income of private sector banks compared to PSUs. In relation to above
scenarios, analyze the following (With examples):
a. Why PSU banks are not able to
raise money from low cost saving and current account deposits ratios? What
impact would it have on their profitability?
b. What are the reasons behind
increase in share of other income in total income for private sector banks as
compared to PSU banks.
Answer: a) An individual opens a savings bank account and in the
case of business, a current account is opened. Individuals can also open
current account. The current account and savings account (CASA) put together
constitute demand deposits. They are referred as CASA deposits. Current
accounts do not earn interest whereas savings accounts earn a simple interest
at a rate
per annum at the discretion of the bank. Bankers prefer more
demand deposits since such cost of funds is low. Current and savings account
(CASA) deposits, once a key pillar of any public sector bank’s business in
India, have shrunk rapidly since the turn of the century as customers moved to
technology-
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