Module: | MODULE A: INTERNATIONAL BANKING
Q113: Consider the following statements regarding the structural definitions of Export Finance and Trade Control:
1. Pre-shipment export credit, commonly referred to as packing credit, is issued to an exporter strictly for financing the purchase, processing, manufacturing, or packing of goods prior to shipment.
2. Post-shipment credit is granted against evidence of the shipment of goods, generally spanning the period up to the exact date of realization of the export proceeds.
3. To maintain domestic monetary stability, both pre-shipment and post-shipment export credits can only be disbursed in Indian Rupees and never in a foreign currency.
Which of the above statements is or are correct?
2. Post-shipment credit is granted against evidence of the shipment of goods, generally spanning the period up to the exact date of realization of the export proceeds.
3. To maintain domestic monetary stability, both pre-shipment and post-shipment export credits can only be disbursed in Indian Rupees and never in a foreign currency.
Which of the above statements is or are correct?
✅ Correct Answer: A
🎯 Quick Answer:
Statements 1 and 2 are correct, while Statement 3 is incorrect.It is divided into two distinct phases: pre-shipment, also known as packing credit, and post-shipment.
Structural Breakdown: Pre-shipment finance covers the costs associated with the procurement, manufacturing, and packing of goods before they are shipped to the foreign buyer.
Post-shipment finance liquidates the pre-shipment advance and covers the credit period extended to the overseas buyer until the final payment is received.
Historical Context: The Reserve Bank of India allows banks to offer both Rupee Export Credit and Export Credit in Foreign Currency.
The foreign currency option was introduced to allow domestic exporters to access finance at internationally competitive interest rates.
Causal Reasoning: Statement 3 is fundamentally flawed because foreign currency export credit is a well-established mechanism designed specifically to help exporters hedge against exchange rate risks and lower their overall borrowing costs.