problem 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)  describe 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. describe the different trade finance tools and techniques to help a middleman in re-export business.

problem 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 describe 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 ex of each.

(c) describe in what ways Basel III expects to ameliorate the recommendations of Basel II in terms of capital adequacy/ credit risk management.

problem 3:

(a) describe the different stages of a financial crisis in an emerging economy.

(b) Compare and contrast any two financial crises.