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IGNOU AED-01 Free Solved Assignment

TUTOR MARKED ASSIGNMENT
Course Code : AED-01
Course Title : Export Procedures and Documentation
Assignment Code : AED-01/TMA/
Assignment Coverage : All Blocks
Maximum Marks : 100

Attempt all the questions

1. Do you think that International Contract Terms help in

reducing disputes between
exporters and importers? Discuss and describe various International
Contract Terms with suitable examples.(4, 16)
Solution: Various International Contract Terms
1.PRICE. Unless otherwise expressly provided, prices stated herein do not include
duties or sales, use, gross receipts, excise or similar taxes and, accordingly, in
addition to the
price stated herein, the amount of any such present or future taxes or duties or
increases therein applicable to the goods covered by this Contract or to the
manufacture, production,
transportation or sale thereof, shall be added to the price and paid by the Purchaser
(―Purchaser‖) or in lieu thereof, Purchaser shall provided Anemostat (―Seller‖)
with tax-exemption
certificates acceptable to the relevant taxing authorities. Unless otherwise
expressly provided, the prices stated are F.O.B. Seller‘s factory and do not include
any taxes assessable
or assessed by any governmental unit including value-added tax, any duty or customs
fees or charges or the cost of any certificates or other charges related to delays at any
port
due to customs or otherwise.
2. PAYMENT. Unless otherwise expressly provided, all payments are to be made net
30 days after date of invoice. Seller may at any time require full or partial payment in
advance
of delivery, or in advance of manufacture, or satisfactory assurances or security
from Purchaser that invoices will be paid when due if in Seller‘s judgment the same
at any time
becomes necessary. If payment is not made when due, interest at the lower of 1 1/2
% per month or the highest rate permitted by applicable law will be charged thereon
and paid
by Purchaser from the due date thereof until paid. In the event Purchaser does not
pay within the terms of this Contract, all collection costs incurred by Seller,
including attorney‘s
fees, will be paid by Purchaser. Time and terms of payment are of the essence and
if any default therein be made by Purchaser or if the financial responsibility of
Purchaser shall at
any time become impaired or unsatisfactory to Seller, Seller shall have the right
to terminate this Contract or to defer or to discontinue further shipments
hereunder until past due
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payments are made or satisfactory assurances of Purchaser‘s financial responsibility

are received by Seller (without prejudice, however, to any rights or claims which
Seller may
have in law or in equity) and such right shall continue irrespective of any prior failure
on the part of Seller to exercise such right. Each shipment is to be considered a
separate sale.
3. DELAYS. The scheduled dates for shipment of the products are estimated based
on current and anticipated manufacturing capabilities at the time of quotation and
may be
quoted as weeks after receipt of order. All delivery dates are estimates only, and
Seller shall not be liable for any damages relating to failure to ship the products as
of a certain date.
Seller shall not be liable for any delay in fulfillment of or failure to fulfill this
Contract arising from any factory or labor conditions, fire, failure or delay in Seller‘s
usual sources of supply
by the acts or omissions of Purchaser, its agents, subcontractors or material
suppliers, or any cause not reasonably within the control of Seller. In the event of
any delay in delivery
or failure to manufacture due to a cause beyond Seller‘s control, unless
otherwise agreed, the time for delivery shall be deemed extended for a period
equal to the period of delay.
4. TRANSPORTATION AND DELIVERY. Unless otherwise provided, all deliveries
of goods are F.O.B. Seller‘s factory and Seller assumes no liability for loss or damage
to the
goods after delivery for shipment at Seller‘s factory, and risk of loss with respect
to the goods passes to Purchaser at the said F.O.B. point.
5. EXPORT LICENSE. Purchaser shall comply with all laws, regulations applicable
to the sale of the goods, and shall obtain all permits or licenses(if any) needed to
complete this
transaction under the laws of the United States. Purchaser represents and warrants
that the goods are intended for commercial use, and will not be used for any
military purpose,
or installed in any military installation.
6. INSPECTION. Purchaser shall inspect the products immediately on the arrival
thereof, and shall within fourteen (14) days after arrival give written notice to Seller
of any matter
by reason whereof it may allege that the products are not in accordance with the
agreement. If Purchaser shall fail to give such notice, the products shall be deemed
to be in all
respects in accordance with the agreement terms. All products made to special
specifications are deemed to be inspected and accepted before shipment is made,
and may not be
canceled.
7. CHANGE ORDERS. Proposed changes in the goods subject to this Contract,
submitted in writing by the Purchaser, will be reviewed by Seller for acceptability and
for the effect
of the proposed changes on shipping schedules and prices; Seller will submit to
Purchaser its decision to accept or not to accept the proposed changes and the
amendments to the
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shipping schedules, selling prices and other terms upon which the proposed
changes would be acceptable to Seller; the changes will become effective as
amendments to this
Contract upon Purchaser‘s written acceptance of the said amended terms.
8. RETURNS AND BACKCHARGES. Goods delivered hereunder may not be
returned by Purchaser without the approval of Seller and the obtaining of
appropriate documentation
(including return tags) from Seller. All returns so approved are subject to Seller‘s
restocking charge unless otherwise agreed to in writing by Seller. No backcharges
for repairs,
corrections or changes in construction of the product shall be made by Purchaser or
accepted by Seller without the prior written approval of an authorized employee at
Seller‘s factory.
9. LIMITATIONS OF LIABILITY. No representation or warranty, expressed or
implied, made by any sales representative or other agent or representative of the
Seller which is
not specifically set forth herein shall be binding upon Seller. Seller shall not be liable
for any special, incidental or consequential damages, losses or expenses directly or
indirectly
arising from the manufacture, sale, or use of the products or from any other cause
relating thereto.
10ARBITRATION. Upon thirty (30) days‘ prior written notice provided by
Purchaser or Seller to the other party, any claim arising out of or related to this
Agreement or the default
thereof, which has not been resolved by mutual agreement of the parties shall be
settled by arbitration, which shall be conducted at the District Courts of
Springfield, Massachusetts
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect, as modified or supplemented herein, or as
the parties mutually agree
otherwise. Notwithstanding the rules of the arbitral body, the Parties agree (a) that
any arbitration shall be presided over by one arbitrator who has been admitted to the
practice of
law, and be in good standing or on retirement status in any of the fifty United
States or the District of Columbia, (b) that the arbitrator shall base his or her
decision on the facts as
presented into evidence and (c) that the arbitrator shall prepare a written
memorandum of decision setting forth the findings of fact and conclusions of law.
The decision of the
arbitrator or arbitrators shall be final, and judgement may be entered upon it in
accordance with the applicable law in any court having jurisdiction. Any claim
for relief made pursuant
to this Agreement shall be made within one (1) year from the date upon which the
party claiming relief knew or should have known of the cause of action
constituting such claim.
This Section shall not be deemed a limitation of Seller‘s rights or remedies to file
suit in a court of competent jurisdiction for the collection of amounts due to Seller
hereunder, whether
directly against the Purchaser or under applicable material payment bonds, unless
such rights or remedies are expressly waived by Selle
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2. What do you mean by terms of payment? Enumerate various methods

of payment and explain the mechanism of realizing payment under the
documentary credit.
Solution: Your financing requirements begin at the time you decide to enter the
export market, but the serious financing requirements start once you get the order.
The contract that you negotiate with the importer dictates:
How you will be paid
When you will be paid
For what you will be paid
These are referred to as your 'payment terms'. All of these factors impact on your post-
contract financing requirements. Take, for example, if you agree to be paid in 90 days.
This will mean that you will not see any money from the buyer for 90 days (and more,
bearing in mind the time it takes for the money to reach you). The 'how' also affects your
financing requirements. As we said before, 'cash in advance' is good, while a 'revocable,
unconfirmed LC' is not so good - this affects your risk of payment and your chances of
getting finance from someone such as a bank. Also, what you agree to be paid for affects
the financing you require. If you have agreed to provide spare parts as part of this
agreement, then it may increase your income, but it also affects the financing you will
require. The lesson to be learnt here, is not always to negotiate the biggest contract up
front. A smaller contract reduces your risk, financing requirements and may place less
demand on your firm and by succeeding with the smaller order, impress the buyer
enough to purchase from you again.

The main steps in a typical documentary credit transaction are:

When you‘ve finalised the export contract, your buyer (the applicant) arranges with
a bank to open a documentary credit in your favour. This foreign bank is called the
issuing bank (or opening bank) and will usually check your buyer‘s creditworthiness.
The issuing bank sends the documentary credit to an Australian bank (the advising
bank). The advising bank verifies the authenticity of the documentary credit and
forwards it to you (the beneficiary).
The documentary credit sets out the documents you must present to receive
payment. When you‘ve shipped the goods and compiled all the necessary documents,
you lodge the documents with your Australian bank—called the negotiating bank—to
arrange the payment. In most cases, the advising bank and the negotiating bank are
the same bank and may be your regular business bank.
The negotiating bank checks the documents to ensure the terms of the documentary
credit have been met. It then sends the documents to the issuing bank with a request
for payment. Sometimes a third bank, called a reimbursing bank, acts as an
intermediary between the negotiating and issuing banks.
If the issuing bank is satisfied that you‘ve provided all the necessary documents in
the exact form required by the documentary credit, it forwards the payment to the
negotiating bank, which in turn pays you. A documentary credit will state whether
you receive payment ‗at sight‘ (immediately after bank verification of the
documents) or at an extended term (for example, 30 days after sight).

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3. i) Discuss various kinds of perils under the cargo insurance.

Solution: Cargo carried on the main deck of the vessel, or other spaces above the
main deck; cargo carried on deck is subject to damage by wind, sea water, and
being washed overboard.
Open Policy A cargo policy with no expiration date that provides automatic
coverage of cargo shipments to or from an Assured in a specified trade at agreed
rates, terms, and conditions. The marine and war policies are usually two separate
open policies. Partial Loss: Any loss to cargo or a vessel that is less than a total loss.
If the partial loss is directly caused by a peril insured against, it is a particular
average loss. Particular Average (PA) A partial loss of the property insured (vessel
or cargo, including total loss of part of a cargo shipment) caused by a peril insured
against, and which is not a General Average loss.
Pilferage
The theft of part or all of the contents from a shipping package where the
package itself is delivered at destination.
Recovery Amount received from a third party responsible for a loss on which a claim
has been paid.
Risk
A fortuitous peril or hazard; i.e. something that may happen, not something that
is inevitable.
Sacrifice
The deliberate destruction or jettisoning of property to prevent greater loss.

Settling Agent
An insurance company's representative in a foreign country who is authorized
to settle claims and make payment on behalf of the insurance company.
Special Drawing Rights (SDR)
An international monetary unit used to measure and compare the changing market
values of currencies of member countries of the International Monetary Fund. It is
equal to the market value of currencies of the 5 member countries: United States,
France, Germany, Japan and England. SR&CC Warranty (Strikes, Riots & Civil
Commotions)
A clause in marine insurance policies that excludes liability for losses caused by
the acts of strikers, locked-out workers, or persons taking part in labor
disturbances or riots or civil commotions or for losses which are directly caused by
persons acting maliciously. This coverage may be restored to the policy by means
of the SR&CC Endorsement, for an additional premium. Total Loss Only (TLO)
An insurance policy covering ONLY the total loss of an entire vessel, an entire
cargo shipment, or other property from an insured peril. A partial loss, even from
an insured peril, is NOT covered by the Total
Loss Only policy. Valuation Clause
The clause in the Marine Policy that contains a consistent basis of valuation agreed
upon by the Assured and the insurance company and which establishes the insured
value of the cargo or vessel when the insurance attaches.
Warehouse To Warehouse Clause
A clause in a cargo policy defining when coverage attaches and terminates.
Coverage attaches when the cargo leaves the warehouse at the place named in the
policy, and
continues during the ordinary course of transit after discharge at the final port.
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Coverage ends when one of the following first occurs:

When the cargo is delivered at the final warehouse at the destination named in the
policy , or 15 days after discharge if the final destination is within the port, or 30
days after discharge if the final destination
is outside the port.
Warranty
An undertaking in which the Assured promises to comply with certain
conditions. Non-compliance constitutes a breach of warranty and the insurance
company is discharged from liability from the date of the breach.
Expressed Warranty - An agreement written in the policy that the Assured must
strictly and literally comply with. A violation thereof voids the insurance; e.g. trading
warranties.
Implied Warranty - Fundamental conditions implied in a contract of
marine insurance:
1. Seaworthiness of the vessel;
2. Legality of the adventure.
War Risks
Those risks related to two (or more) belligerents engaging in hostilities, whether or
not there has been a formal declaration of war. Such risks are excluded by the F.C.
& S. (Free of Capture and Seizure) Warranty, but may be covered by a separate War
Risk Policy, at an additional premium.
Wear & Tear
The ordinary wearing away of the various parts of a vessel, machinery, and
equipment through use.
Such damage is not accidental in nature, but is inevitable.
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ii) Describe the basic principles of ECGC Operation. (10, 10) Solution:
In order to provide export credit and insurance support to Indian exporters, the
GOI set up the Export Risks Insurance Corporation (ERIC) in July,
1957. It was transformed into export credit guarantee corporation limited (ECGC)
in 1964. Since 1983, it is now know as ECGC of India Ltd.

ECGC is a company wholly owned by the Government of India. It functions under the
administrative control of the Ministry of Commerce and is managed by a Board of
Directors representing government, Banking, Insurance, Trade and Industry. The
ECGC with its headquarters in Bombay and several regional offices is the only
institution providing insurance cover to Indian exporters against the risk of non-
realization of export payments due to occurrence of the commercial and political
risks involved in exports on credit terms and by offering guarantees to commercial
banks against losses that the bank may suffer in granting advances to exports, in
connection with their export transactions.
To protect the exporters against credit risks, i.e. non-repayment by buyers
To protect the banks against losses due to non-repayment of loans by exporters
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4. Distinguish between the following:

i) Spot rate and forward rate

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Solution: The price that is quoted for immediate settlement on a commodity, a

security or a currency . Spot settlement is normally one or two business days from
trade date. The spot price reflects market expectations of future price movements for
a security or non-perishable commodity (e.g., gold). The day when a spot transaction
is typically settled, meaning when the funds involved in the transaction are
transferred. The spot date is calculated from the horizon, which is the date ... The
forward rate is the rate which appears in a contract to exchange a currency for
another N days in the future. It is distinguished from the spot rate, which is the rate
used in agreements to exchange one currency for another immediately. No currency
changes hand between the parties in a forward contract at the time it is signed; the
currency is exchanged at the maturity date of the contract N days in the future
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ii) Pre-shipment finance and Post- Shipment finance (10, 10)

Solution: PRE-SHIPMENT FINANCE:
Pre-shipment finance as the name suggest, given to finance the activities on an
exporter prior to the actual shipment of goods for export. The purpose of such
finance is to meet working capital needs starting from the point of purchasing
raw materials to transportation of goods for export to foreign country.

Pre-shipment finance is given for the following purposes:

1. Finance for local procurement of goods.
2. Procuring and processing of goods.
3. Packing and transportation of goods.
4. Payment of insurance premium.
5. Payment of utility bill.
6. Payment of wages and salary.
7. Freight charges.

Forms of Financing:
Back to Back L/C
Bai-Murabaha TR
Bai-Salam
Musharaka.

POST-SHIPMENT FINANCE:
Post-Shipment finance is made by the bank after shipment of the goods by the
exporter, by negotiated and purchased of shipping documents. Bank made
payment on submission of documents if these are free from any discrepancies and
found suitable for purchase in all respect. Bank adjust their liability when get
foreign payment. Bank earns exchange income from such finance, which is
permissible under Islamic shariah.

Purpose:
Payment of Manufacturers/Suppliers
Salary and wages
Rent
Utility
Others
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Form of Financing:
Bai-As–Sarf FDB- Foreign documentary Bill (Former FBN/FBP)
Musharaka Documentary Bills MDB Inland (Former IBN/IBP)
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5. Write short notes on the following: i)

Role of Export Import Book of India
Solution: The Export-Import (EXIM) Bank of India is the principal financial institution
in India for coordinating the working of institutions engaged in financing export and import
trade. It is a statutory corporation wholly owned by the Government of India. It was
established on January 1, 1982 for the purpose of financing, facilitating and promoting
foreign trade of India.

Capital:

The authorised capital of the EXIM Bank is Rs. 200 crore and paid up capital is Rs. 100
crore, wholly subscribed by the Central Government. The bank can raise additional resources
through:

(i) Loans/grants from Central Government and Reserve Bank of India ;

(ii) Lines of credit from institutions abroad ;

(iii) Funds raised from Euro Currency markets ;

(iv) Bonds issued in India.

What are the functions of Export-Import Bank of India:

The main functions of the EXIM Bank are as follows:

(i) Financing of exports and imports of goods and services, not only of India but also of
the third world countries;

(ii) Financing of exports and imports of machinery and equipment on lease basis;

(iii) Financing of joint ventures in foreign countries;

(iv) Providing loans to Indian parties to enable them to contribute to the share capital
of joint ventures in foreign countries;

(v) to undertake limited merchant banking functions such as underwriting of stocks, shares,
bonds or debentures of Indian companies engaged in export or import; and

(vi) To provide technical, administrative and financial assistance to parties in

connection with export and import.

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ii) Fiscal Incentives for Export Promotion (10, 10)

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Solution: Fiscal incentives aimed at import duty neutralisation for export

production has to a large extent lost attraction for exporters, since import duties
have been brought down to Asean levels in most cases. In consultations between
commerce and finance ministry on the Exim policy, the latter has underlined that
any new direct fiscal incentive for exports may not be WTO-compliant and may be
considered as subsidies by buying nations. Instead, it would be prudent to step up
spends on generic export promotion focussed on specific products in new markets to
maintain export growth.

Citing the example of the duty free entitlement passbook (Depb) scheme, commerce
ministry officials pointed out that this will be allowed to continue till 2010. By that
time introduction of Goods and Services Tax (GST) and phasing out of CST will make
the scheme redundant. Even as things stand now, exporters do not find entitlement
rates under the passbook scheme attractive, since import duties are at the lowest
levels.

Officials in the ministry and export promotion councils said that with little leeway
on fiscal incentives, the Exim policy will increase fundingfor individual exporters
and export organisations for more intensive marketing than they are now eligible
under MDA and MAI.

Since both these schemes are framed for ‗focus products, focus countries,‘
products and countries where marketing expenses will be eligible for funding too
may be expanded.

The forthcoming Exim policy is expected to include more countries to this list
and also increase limits of funds that exporters will be eligible for marketing
projects submitted by them.
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