--%>
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 : Compute a company's cost of capital in

    How can we compute a company's cost of capital in emerging nations, particularly when there is no state bond that we could take as a reference?

    		•
  • Q : NPV and Other Investment Criteria The

    The XYZ Manufacturing Company is considering the below investment proposal. The initial investment is $100,000. It was an expected economic life of 10 years. The net cash flow in the initial year is expected to be $25,000 and annual net cash flow is expected to develo

    		•
  • Q : Financial engineering financial

    financial engineering examples,benifits,disadvantages

    		•
  • Q : Problem on financial manager

    Assume that you are a financial manager of Yuen Cheong Manufacturng Company. Due to the rising demand of product X, Yuen Cheong Manufacturng Company decides to open a new production plant in China, so it needs to take a loan of US$1 million. Bank A offers Yuen Cheong

    		•
  • Q : Difference between capitalization and

    Is the difference for the value creation in a company among the market value of the shares (capitalization) and their book value a good measure since its foundation?

    		•
  • Q : Define Economy Impacts Economy Impacts

    Economy Impacts: An upcoming economy is indicated by rise in stock market, as stock market is primary indicator of a economic strength of a country. Progressing economy results in market boom. Yield of companies’ increases on improving economy,

    		•
  • Q : Applied approaches to theory development

    Discuss and distinguish between the following applied approaches to theory development:  true-income (income statement and balance sheet approaches), efficient markets, and predictive ability.  You may want to include in your discussion any articles or studies that either supported or u

    		•
  • Q : Relationship between flow to

    Is there any relationship in between the flow to shareholders and the net income?

    		•
  • Q : Zurich Pvt Ltd. You have joined Zurich

    You have joined Zurich Pvt. Ltd as a Finance manager. You are given the following information: Zurich Pvt Ltd. is a diversified manufacturing firm dealing with electrical appliances. In 2012, the firm reported an operating income of Rs. 857.60 million and faced a tax rate of 35% on income. The firm

    		•
  • Q : Compute betas against local indexes

    Does it make any sense to compute betas against local indexes while a company has a great part of its operations outside such local market? I have two illustrations: BBVA and Santander.

    		•