--%>
Assignment Help - homework help

Problem on rules of the International Chamber of Commerce

RainFlower Trading Limited is a wholesaler of electronic calculators in Hong Kong. It has been importing goods from a Philippine manufacturer for eight years. The Philippine manufacturer had accepted payments in advance in the past. Recently, because of political turmoil in the Philippines, RainFlower Trading Limited considered that the current trade arrangement was too risky. On the other hand, the Philippine manufacturer would not accept payments on open account and requested to have payment in some form of undertaking by a bank. The manager of RainFlower Trading Limited approaches your bank for help. You are required to:

a) Suggest a method of payment that your bank could assist RainFlower Trading Limited with. Please point out the advantages and disadvantages of your suggestion to the company.

b) Discuss the roles and responsibilities of your bank in the method suggested in part under the relevant rules of the International Chamber of Commerce.

E

Expert

Verified

a) The bank can issue a letter of credit to RainFlower Trading Limited. Instead of facing the Philippine manufacturer as the counterparty, the company has their receivables faced to the bank as the counterparty. As a result, the credit risk of the counterparty is reduced for the company and therefore it is more confident for the company to expand their business as their cash flow risk is reduced. However, there is no free lunch for the bank to serve as an intermediary. A hair cut charge will be imposed by the bank on the receivables. Therefore, the profit margin of the company will be reduced with the fee charged by the bank.

b) The roles of banks in the letter of credit include the issuance of the letter of credit

The issuing bank holds primary responsibility for the payment of funds. If the business transaction is canceled, the issuing bank deducts LC fees and expenses, and releases the remaining security deposit. The issuing bank has the obligation to nominate another bank as the nominate bank to act on behalf of all LC transactions.

   Related Questions in Corporate Finance

  • Q : Explain usual value of the sales of net

    Does the usual value of the sales and of the net income of Spanish companies have anything to do along with sustainable growth?

    		•
  • Q : Who explained the high-peak/fat-tails

    Who explained the high-peak/fat-tails?

    		•
  • Q : Explain merits and demerits of standard

    Explain merits and demerits of standard market practice to find the volatility as a function of underlying.

    		•
  • Q : What repercussions do variations in

    What repercussions do variations in the oil price have on the value of a company?

    		•
  • Q : Explain new methodology of standard

    Explain new methodology of standard market practice.

    		•
  • Q : Working Capital - Current Assets and

    I do not know the meaning of Working Capital Requirements. I think this should be same to Working Capital (Current Assets – Current Liabilities). There am I right?

    		•
  • Q : Explain modern quantitative

    Explain modern quantitative methodology for portfolio selection.

    		•
  • Q : What is Stock Market Stock Market : To

    Stock Market: To trade company shares (or stock) and derivatives, a stock market or equity market is public entity where these shares and derivatives are sold at agreed price. These are to be listed on a stock exchange in order to trade publicly.

    		•
  • Q : Standard deviation of portfolios returns

    Assume that you have $50,000 which you want to invest in two companies, XYZ Books and ABC Audio. XYZ has a return of 10% and standard deviation 15%, while ABC has return of 15% with a standard deviation of 20%. The correlation coefficient between them is .5. Your port

    		•
  • Q : Calculating Super normal profit The

    The case study of an economic analysis is done for Schlumberger, oilfield Service Company.  They are No. 1 in terms of market caps, revenue and employees globally. When any references are used/outside sources (except for Schlumberger's annual reports and financia

    		•