Question 1:
You are a trade finance officer working in a commercial bank. You have been approached by one of your customers for some clarifications in relation to international trade. You are requested to answer the following interrogations:
(a) Explain the following terms used in international trade:
i. Import loans
ii. Shipping guarantee
iii. Avalised bill of exchange
iv. ‘Dirty’ bill of lading
(b) What is the difference between ‘cash against documents’ under documentary collection and ‘usance’ documentary credit?
(c) Discuss all the risks that an importer and an exporter faces when dealing on open account.
(d) Your customer intends to import rice from India and re-export it to Madagascar. Explain the different trade finance tools and techniques to help a middleman in re-export business.
Question 2:
Banks find it more profitable to lend money as the margin on lending is much higher than any other banking activity. However, banks have to assess credits risks and take necessary measures to reduce and mitigate their risks.
(a) Clearly explain the following terms used in relation to credit risk analysis:
i. Expected Loss
ii. Credit risk drivers;
iii. Credit scoring
(b) Differentiate between positive and restrictive covenants, giving two example of each.
(c) Explain in what ways Basel III expects to ameliorate the recommendations of Basel II in terms of capital adequacy/ credit risk management.
Question 3:
(a) Explain the different stages of a financial crisis in an emerging economy.
(b) Compare and contrast any two financial crises.