--%>
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 : Which model was great breakthrough for

    Which one model was great breakthrough for side of finance theory?

    		•
  • Q : Minimum annual savings problem XYZ

    XYZ Company is interested in purchasing a new corporate jet for $6 million. This will depreciate the jet completely in 5 years and then sell it for $5 million. The jet will utilize $60,000 in fuel annually, and its maintenance will be $40,000 yearly. The tax rate of X

    		•
  • Q : APR of Loan When you take out an $8,000

    When you take out an $8,000 car loan that calls for 48 monthly payments of $225 each, then what is the APR of loan?

    		•
  • Q : How much confidence can an investor

    I heard conversation of the Earnings Yield Gap ratio, that is the difference among the inverse of the PER and the TIR on 10-year-bonds. This is said that if this ratio is positive then this is more advantageous to invest in equity. How much confidence can an investor

    		•
  • Q : Define Cash to cash cycle Cash to cash

    Cash to cash cycle: The concept of cash to cash cycle is financial performance standard, which is associated with the management of a firm’s working capital. The definition of cash to cash or cash conversion cycle is “the length of time a

    		•
  • Q : Problem on Corp stocking Cheever Corp

    Cheever Corp stock is selling at $40 a share. Its dividend in subsequent year will be $2 a share and its β is 1.25. Crane Company has similar growth rate as Cheever. The current stock price of Crane is $55 a share, and its dividend this year is $3. The riskless r

    		•
  • Q : Data Case Please Assist with the

    Please Assist with the attached Data Case Assignment

    		•
  • Q : Commercial Banking Assignment Part I

    Part I Guidelines and requirements: The questions in Part I of this assignment are based on the materials covered in Units 1 and 2. Please write a short-ess

    		•
  • 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

    		•
  • Q : How economic doctrine relies on

    I read in a sentence passed through the Supreme Court that, so as to value companies, economic doctrine relies upon intermediary methods among ‘Anglo-Saxon’ theoretical models and the practical models common in the United

    		•