--%>
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 : How can auditor spot acts of creative

    How can auditor spot acts of creative accounting? Means let an illustration, the excess of provisions or the non-elimination of intra group transactions along with value added.

    		•
  • Q : Abnormal profits based on fundamental

    If it is possible to make abnormal profits based on fundamental analysis, you can conclude that the market is: A) Not weak-form efficientB) Weak-form efficientC) Not semi-strong-form efficientD) Semi-strong-form e

    		•
  • Q : Explain Indenture Explain the term

    Explain the term Indenture and also describe their provisions?

    		•
  • Q : Illustrates the Gordon and Shapiro

    What is the importance and the utility of the given formula: Ke = DIV(1+g)/P + g?

    		•
  • Q : Zero coupon bonds problem Shana wants

    Shana wants to purchase 5-year zero coupon bonds with a face value of $1,000. Her opportunity cost is 8.5 %. Supposing annual compounding, what would be the present market price of such bonds? (Round to the closest dollar.) (a) $1,023  (b) $665  (c) $890&nbs

    		•
  • Q : Assignment help for Financial Statement

    HW I: Show your approach to each problem (formulas, variables, etc.) You can use Excel sheet formulas to show the work or use the Finance calculator terms. For the ABC answers: choose the correct answer and delete the rest.

  • Q : Problem on EBIT ABC Corporation stock

    ABC Corporation stock sells at $27 per share and its dividend per share is $1.20. ABC has price-earnings ratio of 16. The company contains $40 million worth of bonds, selling at par, with 8.5% coupon. The EBIT of ABC is of $12 million and its tax rate is 30%. Calculat

    		•
  • Q : Illustrates beta and capital structure

    We are valuing a company, many smaller than ours, so as to buy it. As that company is too smaller than ours this will have no influence on the capital structure and at the risk of the resulting company. It is the reason why I believe this the beta and the capital stru

    		•
  • Q : Market for Corporate Bonds Write some

    Write some point regarding Market for Corporate Bonds.

    		•
  • Q : Problem on annual obligation payment

    ABC Corp. has a challenge: The CEO wants to set aside annual, end of year payments into a sinking fund account earning 5% over the next 6 years in order to retire $25 million in bonds that will be outstanding at that time. Determine the annual payment required each ye

    		•