About Event
In international trade, transactions are happening with unknown parties in different countries. In general companies are exposed to default risk of the counter party, country risk and currency exchange risks.
Recently few cases are reported wherein Indian exporters were not able to recover their payments from the overseas buyers even though they received letter of credit as security. Few cases are shared below:
- Indian exporter insisted a letter of credit from the overseas buyer to safeguard the default risk. Buyer readily agreed and arranged for a letter of credit in favour of the Indian exporter. Good were shipped and documents drawn under the letter of credit were presented through the exporter’s bank to the issuing bank. Even after six months there was no response from the issuing bank.
- In another case Indian exporter received payment under the letter of credit but there was a deduction of 2.45% as confirmation charges which Indian exporter never expected.
- Exporters are having good trade opportunities from under developed countries but always faced with default risks.
Last year it was reported in the market that more than 80,000 exporters were put under caution list for non-compliance of FEMA (Foreign Exchange Management Act) 1999. When some of the cases were reviewed it was found that the exporter could realize more than 95% of the export proceeds but a small portion remained outstanding. Though exporting company had written off financially it was not properly reported to Reserve Bank. Reserve Bank through a system called EDPMS was able to capture the data of exporters who had not brought full payment to India within the prescribed IDPMS. Though lot of powers are delegated to Authorised Dealers (AD) still there is a gap in implementing the delegated authority by AD.
Recently in 2018 USD moved from 63 to 75 levels. Some of the exporters were waiting the USD to cross 75 levels to cover their exposures and some of the importers rushed to the market and covered their exposure at 74 levels. But USD/INR came down to 67 levels. Exporters missed the opportunity of capitalizing the up movements and importers rushed to the market at an inappropriate time. When the currency market is moving on either side, companies should have a basic idea of understanding the currency market and should have currency risk management strategy.
This work shop is designed to provide an update to the participants to manage:
- The default risk and country exposure how to receive a workable letter of credit and how to present a set of documents without any discrepancy to get the maximum benefit of the letter of credit. From the Importers view how to structure a letter of credit to ensure that overseas seller complies with his entire contractual obligation and receive the desired goods. Practical hands on experience will be provided to the participants with a live case study.
- In this case study we will be discussing the implication of each Field in the revised SWIFT LC format which came into effect from 19th Nov 2018 with specific reference to UCP 600 appropriate articles. (Rules for LC transactions – Uniform Customs and Practice for Documentary Credits ICC 600)
- To avoid discrepancies in the export documents under letter of credit, case studies will be introduced with specific reference to International Standard Banking Practice on Examination of Documents under Documentary Credit (ISBP 745). This set of guidelines have reduced the discrepancies but the market is not aware about this publication at all (except few corporate and bankers).
- To have a thorough understanding of Foreign Exchange Management Act (FEMA) 1999 on export and import of goods and services and to avoid being caution listed in future the responsibilities and obligations of the exporting and importing companies with specific reference to FEMA guidelines will be discussed with case studies.
- To understand the currency movement a practical exercise will be introduced on currency market. We will be discussing various types of currency exposure any company may have whether they have export or imports or only domestic transactions how they are getting affected by the global developments. What type of risk management strategy to manage the currency risk a company should adopt?
