Paper-203

Trade Finance & Foreign Exchange

(AIBB-100th/5th BPE)
[English Version]

TimeSmart Professional Team.

(On behalf of TimeSmart Professional School)

Writer & Compiler

Md. Rasel Uddin LLB, BBA, MBA. ITP, ACMA
Assistant Professor
Department of Accounting & Information Systems
Begum Rokeya University, Rangpur
Member: ICMAB, Bangladesh Accounting Association, Rangpur Tax Bar Association etc.

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 Syllabus-2023
PAPER 3 : INTERNATIONAL TRADE AND FOREIGN EXCHANGE Full Marks : 100
Module A: International Trade and Foreign Exchange-Overview
Concepts of International Trade and Foreign Exchange, Domestic and International Trade,
Recording of International Trade and Foreign Exchange Transactions-components, BOT and
BOP, Currency Convertibility, Foreign Exchange Reserves, International Banking, Foreign
Exchange and Trade Services.
Module B: International Trade Payment Methods
Sales / Purchase Contract; Different Forms of Trade Payment Methods- Cash in Advance;
Open Account; Documentary Collection- Operational Procedures, Documents Against
Acceptance and Documents Against Payment; Documentary Credit-Procedures and Parties
involved, Settlement Procedures, Different Types of Documentary Credits, Presentation and
Examination of Documents and Negotiation, Lodgment and Retirement of Documents under
Documentary Credit; Open Account Payment Secured by International Factoring, Bank
Guarantee or Standby Letter of Credit.
Module C: Documents in Trade Services
Different Types of Documents used in Trade services- Commercial Invoice; Transport
Document; Insurance Document; bill of exchange; Commercial Documents and Financial
Documents; and Other Documents.
Module D: Regulatory Framework
Domestic Regulatory Framework for International Trade and Foreign Exchanges-Foreign
Exchange Regulation Act 1947; Export and Import Policies of Bangladesh; Bangladesh Bank
Guidelines on Foreign Exchange Transactions.
International Regulations for Trade Services-Uniform Customs and Practice for Documentary
Credits (UCPDC); Uniform Rules for Bank to Bank Reimbursement (URR) under
Documentary Credit; International Standard Banking Practices (ISBP); Uniform Rules for
Collection (URC); International Commercial Terms (Inco terms); International Standby
Practices (ISP); Uniform Rules for Demand Guarantee (URDG); The General Rules for
International Factoring (GRIF).
Module E: International Trade Finance
Export Finance- Back to Back L/C, Packing Credit, Export Development Fund (EDF)-
Purchasing Documents, Supply Chain Finance-International Factoring, Loan against Imported
Merchandise (LIM), Loan against Trust Receipt (LTR), International Bank Guarantees, Trade
Financing and Offshore Banking-UPAS.
Module F: Foreign Remittance, Foreign Currency Accounts, and Exchange Rate
Foreign Remittance-Commercial Remittance, Private Remittance-Foreign Currency
Accounts- Opening and Operational Procedures of Private Foreign Currency Accounts, Non-
Resident Foreign Currency Deposit Accounts (NFCD), Resident Foreign Currency Deposit
Accounts (RFCD); Exchange Rate relevant for trade services.
Module G: Malpractices in Tarde Services
Irregularities and fraudulent activities associated with trade payment, trade finance, Sanctions,
Trade-Based Money Laundering, Illicit Financial Flows, and Illegal Remittance Flows.
 Trade Finance (Page-2) Foreign Exchange

Table of Content
Module A: International Trade and Foreign Exchange-Overview ............................ 12

Module B: International Trade Payment Methods .................................................... 29

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 Trade Finance (Page-5) Foreign Exchange

Module C: Documents in Trade Services .................................................................. 69

Module D: Regulatory Framework .............................................................................. 83

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 Trade Finance (Page-6) Foreign Exchange

Module E: International Trade Finance .................................................................... 103

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 Trade Finance (Page-7) Foreign Exchange

Module F: Foreign Remittance, Foreign Currency Accounts, and Exchange Rate 121

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 Trade Finance (Page-9) Foreign Exchange

Module G: Malpractices in Tarde Services ............................................................. 150

Short Notes ................................................................................................................. 158

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 Trade Finance (Page-10) Foreign Exchange

Differences (Cover 10 Years Solution)..................................................................... 173

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 Trade Finance (Page-11) Foreign Exchange

Foreign Exchange Math Solution .............................................................................. 196

Previous Exam Question ........................................................................................... 211

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 Trade Finance (Page-12) Foreign Exchange
Module A: International Trade and Foreign Exchange-Overview
Concepts of International Trade and Foreign Exchange, Domestic and International Trade,
Recording of International Trade and Foreign Exchange Transactions-components, BOT and
BOP, Currency Convertibility, Foreign Exchange Reserves, International Banking, Foreign
Exchange and Trade Services.

Definition of International/Foreign Trade.

We live in an age of globalization, where different nations across the world trade goods and services.
This has therefore seen the development of international trade and international trade agreements.
International trade is referred to as the exchange or trade of goods and services from one country to
another. This kind of trade contributes and increases the world economy. Here are some important
expert definitions of international trade:
According to Prof. Hanson, An exchange of various specialized commodities and services rendered
among the corresponding countries
Professor Kindleberger said

According to Professor Amos, "International trade is the exchnage of goods across national
boundaries."
So, international Trade refers to the exchange of products and services from one country to another.
It usually comes with additional risks caused by changes in exchange rates, government policies,
laws, judicial systems, and financial markets.

Who are the core parties in international trade?

The core parties involved in international trade are:
1. Exporters: These are businesses or individuals who sell goods or services to buyers in other
countries.
2. Importers: These are businesses or individuals who purchase goods or services from sellers in
other countries.
3. Governments: Governments play a key role in international trade by regulating trade policies,
setting tariffs, and negotiating trade agreements.
4. International organizations: International organizations such as the World Trade Organization
(WTO), International Monetary Fund (IMF), and the World Bank facilitate international trade
by providing a framework for cooperation and resolving trade disputes.
5. Freight forwarders and logistics providers: These are companies that provide services such
as shipping, transportation, and customs clearance for businesses engaged in international trade.
6. Banks and financial institutions: Banks and financial institutions facilitate international trade
by providing letters of credit, currency exchange, and other financial services to exporters and
importers.
7. Consumers: Ultimately, international trade is driven by the demand of consumers in different
countries for goods and services produced in other countries.

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 Trade Finance (Page-13) Foreign Exchange
Discuss the importance of International Trade in the economic development
in Bangladesh.
International trade plays a significant role in the economic development of Bangladesh. Here are 12
important reasons why international trade is crucial for Bangladesh's economic growth:
1. Export Diversification: International trade helps Bangladesh diversify its exports, reducing
economic risks and promoting stability.
2. Increased Foreign Exchange Earnings
reserves, essential for importing necessary goods and technologies.
3. Job Creation: International trade has created millions of jobs in Bangladesh, especially in labor-
intensive sectors like garments and pharmaceuticals.
4. Technology Transfer: Bangladesh acquires advanced technologies and knowledge through
international trade, enhancing local industry productivity and competitiveness.
5. Access to Capital Goods: International trade allows Bangladesh to import industrial machinery,
modernizing its industries and improving efficiency.
6. Foreign Direct Investment (FDI): FDI, attracted by international trade, brings capital and
expertise to Bangladesh, fostering economic growth and infrastructure development.
7. Economic Growth: International trade drives economic growth in Bangladesh by expanding
markets and encouraging efficient resource use.
8. Revenue Generation: The government earns revenue from international trade through duties and
taxes, funding public sector investments.
9. Skill Development: International trade necessitates a skilled workforce, prompting investments
in education and training in Bangladesh.
10. Access to Consumer Goods: Bangladeshis gain access to a diverse range of consumer goods
through international trade, enhancing their quality of life.
11. Market Diversification: International trade allows Bangladesh to spread its export markets,
reducing reliance on any single country or region.
12. Economic Resilience: A diversified export sector through international trade strengthens

In conclusion, international trade plays a crucial role in the economic development of Bangladesh by
promoting export diversification, foreign exchange earnings, job creation, technology transfer,
access to capital goods, FDI, economic growth, revenue generation, skill development, access to
consumer goods, market diversification, and economic resilience.

Discuss the problems exist in export trade of Bangladesh and write the
probable ways to solve the problems. BDE-95th
Export trade is one of the best business ideas in Bangladesh. Starting export business is challenging
in Bangladesh. The export trade in Bangladesh faces many problems. Here are some major problems
of export trade in Bangladesh:
1. Inadequate Exportable Goods
items, necessitating diversification efforts by both the government and exporters.
2. Lack of Experience: Bangladeshi exporters struggle with international market penetration and
lack support from trade promotion entities, despite the potential for export trade.

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 Trade Finance (Page-14) Foreign Exchange
3. Shortage of Capital: Exporters face challenges in securing sufficient capital for procurement and
production, with bank financing often falling short.
4. Poor Product and Packaging Quality: Bangladeshi exports suffer from quality issues and
inadequate packaging, hindering competitiveness in the global market.
5. Dishonesty of Some Exporters: Allegations of dishonest practices among some exporters have
damaged the reputation of Bangladeshi trade and led to the loss of foreign customers.
6. Excessive Bureaucratic Control: Bureaucratic hurdles and corruption within the export sector
discourage entrepreneurs from engaging in export trade.
7. Transport and Warehousing Problem: Inefficient transport and inadequate warehousing
facilities pose significant challenges for Bangladeshi exporters.
8. Infrastructural Problem: Poor infrastructure, energy deficits, and mismanaged companies

9. Political Instability: Political stability is crucial for a conducive trade environment, affecting both
general trade and exports.
10. Lack of Sales Promotion Abroad and Inadequate Market Information: Insufficient sales
promotion and market intelligence abroad negatively impact the visibility and success of Bangladeshi
products in the global market.
Probable ways to solve the problems :
The export trade in Bangladesh faces many problems. If we can overcome these problems then export
trade will be successful in Bangladesh. The following steps can be suggested:
1. Increase Exportable Goods: Bangladesh should diversify its export base beyond traditional items
to reduce vulnerability to external shocks.
2. Diversification into New Markets and Products: Bangladesh has a comparative advantage in
exporting readymade garments to ASEAN markets, which should be further explored.
3. Payment Methods: Proper research and the right payment methods are crucial for international trade.
4. Different Legal Norms: Exporters need legal expertise to navigate regulations and ensure goods safety.
5. Remove Bureaucratic Red Tape: Streamlining bureaucratic processes is essential to avoid delays
and blockages.
6. Increase Exporter Experience: Bangladesh should enhance its expertise in capturing foreign
markets and promoting exports.
7. Ensure Capital Availability: Adequate financing is necessary for procuring goods and manufacturing.
8. Improve Product Quality and Packaging: Enhancing quality and packaging is essential to
compete globally.
9. Punish Dishonest Exporters: Laws and regulations should penalize exporters who compromise
quality and trust.
10. Address Transport and Warehousing Issues: Improving transport and warehousing facilities
is crucial for exporters.
11. Invest in Infrastructure: Developing ports, roads, and energy infrastructure is essential for
efficient trade.
12. Ensure Political Stability: Stable political conditions are vital for trade and export growth.
13. Boost Sales Promotion Abroad and Market Information: Promoting products and providing

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 Trade Finance (Page-15) Foreign Exchange
What are your suggestions for boosting up export in Bangladesh? BDE-95th
The following suggestions can be taken for boosting up export in Bangladesh:
1. Geography and Transportation: Long distances and different continents increase the complexity
of exporting goods.
2. Improvement of Payment Methods: Choosing the right international payment method is crucial
for successful trading.
3. Different Legal Norms: Navigating different legal systems requires expertise to avoid delays in
the export-import process.
4. Remove Bureaucratic Red Tape: Simplifying bureaucratic procedures is essential to facilitate
the export-import process.
5. Removal of Language Barriers: Overcoming language differences is important for clear
communication in international trade.
6. Finding the Right Importer: Securing a reliable importer is key to a successful import-export relationship.
7. Remove Customs and Cultural Problem: Understanding and respecting local customs and
culture is vital when exporting to new countries.
8. : Gaining experience in international markets is necessary for
Bangladeshi exporters to compete effectively.
9. Ensure Availability of Capital: Adequate financing is needed for the procurement and
manufacturing required in export trade.
10. Increase Product and Packaging Quality: Improving product quality and packaging is critical
to meet global export standards.
11. Remove Transport and Warehousing Problem: Addressing transport and warehousing
inefficiencies is crucial for export trade.
12. Infrastructural Development: Developing infrastructure is necessary to reduce delays in trade
and support industrialization.
13. Ensure Political Stability: Political stability is essential for fostering a favorable environment
for trade.
14. Increase Sales Promotion Abroad and Market Information: Enhancing sales promotion and
market information abroad is important to raise awareness of Bangladeshi products.

What do you mean by service export? Give some examples of service export
from Bangladesh.
A service export is any service provided by a resident or a company in one country to people or
companies from another country. For example, if a Bangladeshi company provides software
development, data processing, or call center support to a foreign client, that is a service export.
Service exports can also include tourism, transportation, education, health, and financial services.
According to the World Bank, Bangladesh exported $3.8 billion worth of services in 2020, which
was 6.4% of its total exports. Some examples of service exports from Bangladesh are:
Computer services: Bangladesh has a growing IT sector that offers software development, web
design, data entry, and other IT-enabled services to clients in North America, Europe, and
Asia. According to the Bangladesh Association of Software and Information Services (BASIS),
computer services export crossed $300 million in 2020 and is expected to reach $1 billion by
2025.
Transport services: Bangladesh provides air, sea, and land transport services to foreign
passengers and cargo. Transport services include fuel refilling by foreign aircraft, port services

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 Trade Finance (Page-16) Foreign Exchange
for foreign ships, and freight forwarding for foreign goods. Transport services accounted for 40%

Travel services: Bangladesh attracts foreign tourists who visit the country for its natural beauty,
cultural heritage, and religious diversity. Travel services include accommodation, food,
entertainment, and sightseeing for foreign visitors. Travel services contributed 22% of

Other services: Bangladesh also exports various other services such as education, health,
construction, consultancy, and personal and cultural services. These services involve providing
training, medical care, engineering, management, and creative services to foreign
customers.

Bangladesh has the potential to

increase its service exports by improving the quality, diversity, and innovation of its services, as well
as by removing barriers and promoting trade agreements with other countries.

In Bangladesh, jobless young people are moving towards cross-border

outsourcing. Is it a service export? Analyze the issue along with the challenges and
prospects from regulatory and economic point of view.
Yes, the work Bangladeshi young people are doing through cross-border outsourcing can be
considered a service export. They are providing various services like data entry, virtual assistance,
content creation, and software development to clients abroad, generating foreign income for the
country. Cross-border outsourcing has become a popular option for jobless young people in
Bangladesh, who can leverage their skills and talents to earn income and gain exposure to the global
market.
The challenges and opportunities of cross-country outsourcing from a regulatory and economic
perspective are:
Challenges:

for outsourcing.

required for outsourcing.

required for outsourcing.

Possibilities:

deficit, increase currency flow and contribute to economic development.

Outsourcing will create employment, income, skills, training, experience, creativity,
entrepreneurship and other development opportunities for the unemployed youth of Bangladesh.

development, software development, data entry, graphic design, digital marketing, content writing,
online education, health care, nursing and other services and make Bangladesh a digital Bangladesh.

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 Trade Finance (Page-158) Foreign Exchange
Short Notes
Consular Invoice [BDE Dec-17, 13, 11, June-07]
A consular invoice is a document containing details regarding the shipment of goods certified by the

authorising the shipment for clearance with the customs officials.

A consular invoice serves as proof that the shipment of goods was sighted, stamped or authorized by
the consul of the country where the shipment is being transported to. A consular invoice contains the
details of a shipment such as a consignor, consignee, and value of the shipment. A consular invoice
is an authorized document that facilitates the collection of taxes and control over imports by
countries. It also prevents the misrepresentation of a shipment that can occur due to under-invoicing
or over-invoicing.

Clean Bill of Lading. [June-20; BDE-94th]

A clean bill of lading is one which bears no superimposed clause or a notation that expressly indicates
the defective condition of the goods or the packaging. A clean bill of lading is one type of bill of
lading signed by the carrier and the shipper. It guarantees the goods received and placed on the vessel
are in good condition with no apparent damage or defect.
A clean bill of lading declares about no defections oe damages on the following information:
The type of product being shipped.
Quality and quantity of the products.
The predetermined destination.
A bill of lading is a legal document between a shipper and carrier detailing the type, quantity, and
destination of the goods being carried. The bill of lading also serves as a receipt of shipment when
the goods are delivered at the predetermined destination.

Stale Bill of Lading.

A "stale bill of lading" refers to a bill of lading that is issued or presented to the carrier or shipping
line after the expiration of a specified time period. A bill of lading is a crucial document in
international trade that serves as evidence of the contract of carriage between the shipper and the
carrier. It also acts as a receipt for the goods being shipped and provides title to the goods.
If the original bill of lading reaches the consignee after the arrival of the vessel at the destination, it

within the time allowed by the port authorities. In such cases the consignee has to obtain a bond,

There can be various reasons why a bill of lading may become stale, including delays in shipping,
changes in the shipment schedule, or administrative issues. When a bill of lading becomes stale, it
may raise concerns and potential complications for the parties involved in the transaction.
To mitigate the potential issues associated with stale bills of lading, it is important for the parties
involved in the shipment to adhere to the agreed-upon timelines and communicate any changes or
delays promptly.

Transport documents in a letter of credit. Dec-09; BPE-96th

Transport documents in a letter of credit (LC) transaction are a crucial component of international

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 Trade Finance (Page-159) Foreign Exchange
trade. They serve as proof that the goods have been shipped or will be shipped as per the terms and
conditions of the LC. These documents provide evidence of the shipment and are used by the buyer,
seller, and banks involved to facilitate payment and transfer of ownership. Issuing a letter of credit
requires several documents. They include a commercial invoice, packing list, bill of lading, analysis
report, certificate of origin, and other documents requested by the bank.
The specific transport documents required in an LC transaction depend on the terms and conditions
agreed upon between the buyer and seller, as well as any applicable regulations or trade practices. It is
essential to carefully review the LC terms to ensure compliance with the required transport documents,
as discrepancies can lead to delays in payment or even rejection of the documents by the banks.

Financial messaging system. BPE-96th

A financial messaging system is a platform or network that facilitates the secure exchange of
financial messages between financial institutions and other participants in the financial industry.
These systems enable efficient communication and data exchange for various financial transactions.
Financial Messaging System is a secure messaging standard developed to serve as a platform for
intra-bank and inter-bank applications.
Examples of financial messaging systems include SWIFT (Society for Worldwide Interbank
Financial Telecommunication), which is widely used for secure messaging in global financial
transactions, and other regional or domestic systems tailored to specific countries or regions.
In summary, financial messaging systems play a vital role in facilitating secure and efficient
communication and data exchange within the financial industry. They support various financial
transactions, enhance operational efficiency, and ensure compliance with industry standards and
regulations.

Shipping Guarantee. BDE-93th, Dec-17

Shipping Guarantee refers to a written guarantee, issued by the bank which will bear joint liability,
and is presented by the importer to the carrier or its agent for picking up the goods in the case of
arrival of cargo prior to the shipping documents. Shipping Guarantee is commonly used under L/C
with full set of documents of title to goods.
Functions: The product can help importers pick up the goods in time to avoid port demurrage. It is
applicable in the case of short shipping voyage and the goods arriving prior to the documents.
Process
1. As goods arriving prior to the documents under L/C or collection (including original bill of
lading), the importer submits the shipping guarantee application to the issuing Bank.
2. After strict examination, the issuing Bank offers the shipping guarantee for the importer.
3. The importer picks up the goods from shipping company (or other carriers) by presenting shipping
guarantee issued by the issuing Bank.
4. When documents under L/C or collection arriving, the importer shall take documents against
payment terms in the issuing Bank, and then exchange for the shipping guarantee with the original
bill of lading from shipping company (or other carriers) and return it to the issuing Bank.

Foreign Correspondents. [Dec-07,08; May-06]

Foreign Correspondent is a financial organization such as a securities firm or a bank that regularly
performs services for another firm that does not have the requisite facilities or the access to perform
the services directly. For example, a member of a securities exchange may execute a trade for a

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 Trade Finance (Page-173) Foreign Exchange

Differences (Cover 10 Years Solution)

OD Sight and BC Selling Rate. BPE-96th
OD Sight Rate refers to the foreign currency exchange rate on a particular day that is applicable for
spot transactions. This is the rate that banks or financial institutions use for instant transactions.
BC Selling Rate (BC Selling Rate) is the foreign currency selling rate that banks or financial
institutions apply when selling foreign currency to their customers. It is usually higher than the
buying rate, as it includes the bank's margin.
Here are major differences between OD Sight and BC Selling Rate presented in a table format:
Differences OD Sight BC Selling Rate
Purpose Used for international transactions by Used by banks to buy and sell foreign
businesses and financial institutions currency to retail customers
Calculation Based on average exchange rates in the Determined by individual banks based
Method international foreign exchange market on their pricing strategies
Availability Accessed by financial institutions and Readily available to retail customers at
corporations dealing with large-scale bank branches or through online
transactions banking platforms
Variability More volatile and subject to frequent Relatively stable, with rates adjusted
fluctuations due to global foreign less frequently to provide consistency
exchange market dynamics for retail customers
Spread Quoted with a narrower spread due to May have a wider spread to cover costs
economies of scale and tighter margins and generate profit for banks
for financial institutions
Transaction Suitable for high-value transactions Caters to smaller transactions, such as
Size involving large amounts of foreign purchasing foreign currency for travel
currency purposes
Accessibility Accessed through specialized financial Easily accessible to retail customers
platforms primarily available to financial through bank branches, ATMs, and
institutions and corporations online banking platforms

What is difference between UPAS & Usance/deferred LC? [BDE-94 th,98th]

The difference between UPAS LC and Usance LC are enumerated as follows:
1. Definition: UPAS LC is a financial instrument combining Usance and Sight LCs, where the bank
pays the exporter immediately upon document presentation, while the importer pays the bank under
usance terms at a later date. Whereas Usance/Deferred LC is a letter of credit that allows the buyer
to defer payment until a specified future date, providing the seller with a bank guarantee of payment
after a predefined period.
2. Payment Timing: UPAS LC allows the beneficiary to receive payment immediately upon
presentation of documents, while Usance/Deferred LC delays payment until a specified future date.
3. : UPAS LC provides immediate cash flow to the beneficiary, whereas
Usance/Deferred LC requires the beneficiary to wait for the deferred payment period to end.
4. : In UPAS LC, the buyer pays the bank under usance terms after the seller is
paid at sight, but in Usance/Deferred LC, the buyer pays after the usance period directly.
5. Financing Source

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 Trade Finance (Page-196) Foreign Exchange
Foreign Exchange Math Solution

TFFE-99th Math Solution (Q-10)

Suppose, you want to purchase EURO 65,000 to make payment on behalf of your importer. Please
calculate the buying and selling exchange rate using the following Forex market data and calculate
the amount of BDT you have to pay for purchasing EURO 65,000?
Inter bank Foreign exchange rate:
EURO 1 = USD 1.0978 1.1158
USD 1 = BDT 117.5854 118.6476
(Please show your calculation).
Solution:
Step 1: Understand the given exchange rates:
EUR to USD rates:
- Buying rate: EUR 1 = USD 1.0978 (bank buys EUR at this rate)
- Selling rate: EUR 1 = USD 1.1158 (bank sells EUR at this rate)
USD to BDT rates:
- Buying rate: USD 1 = BDT 117.5854 (bank buys USD at this rate)
- Selling rate: USD 1 = BDT 118.6476 (bank sells USD at this rate)
Step 2: Calculate the buying rate of EUR in BDT: When the bank buys EUR from the client
(exporter), it will-
Buy EUR using the EUR to USD buying rate (EUR 1 = USD 1.0978).
Convert the USD to BDT using the USD to BDT buying rate (USD 1 = BDT 117.5854).
The formula for the buying rate of EUR in BDT is:

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