Module: | MODULE A: INTERNATIONAL BANKING
Q123: Consider the following statements regarding the structural definitions of Trade Credit:
1. Trade Credit refers to the financial credits extended for imports directly connected to trade, broadly classified into Supplier Credit and Buyer Credit.
2. Supplier Credit involves financial credit directly extended by the overseas seller of goods to the domestic importer for a specified duration.
3. Buyer Credit involves a financial loan given by an overseas bank or financial institution directly to the overseas supplier, entirely bypassing the domestic importer.
Which of the above statements is or are correct?
2. Supplier Credit involves financial credit directly extended by the overseas seller of goods to the domestic importer for a specified duration.
3. Buyer Credit involves a financial loan given by an overseas bank or financial institution directly to the overseas supplier, entirely bypassing the domestic importer.
Which of the above statements is or are correct?
✅ Correct Answer: A
🎯 Quick Answer:
Statements 1 and 2 are correct. Statement 3 is incorrect.Structural Breakdown: It is divided into two primary architectures.
Supplier Credit occurs when the foreign seller allows the domestic buyer to pay after a certain period, essentially funding the purchase.
Buyer Credit occurs when an overseas bank provides a loan to the domestic buyer, which is used to pay the foreign seller immediately.
Historical Context: These structures are heavily regulated because they constitute short-term external commercial debt.
The central bank limits the maturity periods, typically capping capital goods at 3 years and non-capital goods at 1 year or the operating cycle.
Causal Reasoning: Statement 3 is incorrect because Buyer Credit is a loan granted to the domestic importer, not directly to the overseas supplier.
The domestic importer takes on the legal debt obligation with the overseas bank, even though the funds are subsequently routed to the supplier to settle the trade invoice.