Module: | MODULE A: INTERNATIONAL BANKING
Q129: Consider the following statements regarding the calculation of pre-shipment packing credit for an exporter who has received an order worth 100,000 United States Dollars:
1. If the Authorized Dealer bank mandates a 10 percent margin, the maximum packing credit disbursed to the exporter will be calculated on 90 percent of the Free on Board value of the export order or the domestic cost of production, whichever is lower.
2. The bank is legally permitted to disburse the packing credit advance directly into the personal savings account of the exporter to ensure rapid access to manufacturing funds.
3. The packing credit advance must be exclusively utilized for purchasing raw materials, processing, and packing the specific goods required for the 100,000 United States Dollars export order.
Which of the above statements is or are correct?
2. The bank is legally permitted to disburse the packing credit advance directly into the personal savings account of the exporter to ensure rapid access to manufacturing funds.
3. The packing credit advance must be exclusively utilized for purchasing raw materials, processing, and packing the specific goods required for the 100,000 United States Dollars export order.
Which of the above statements is or are correct?
✅ Correct Answer: B
🎯 Quick Answer:
Statements 1 and 3 are correct. Statement 2 is incorrect.Structural Breakdown: The quantum of finance is never 100 percent of the order value.
Banks maintain a safety margin, typically 10 to 25 percent.
The loan amount is restricted to the Free on Board value minus the margin, or the actual domestic cost of production, whichever is strictly less.
This ensures the bank does not over-finance the exporter.
Historical Context: Strict end-use monitoring of export credit has always been a cornerstone of the central bank policy to prevent the illegal diversion of highly concessional funds into speculative domestic markets or personal real estate.
Causal Reasoning: Statement 2 is incorrect because a packing credit loan cannot be disbursed into a personal savings account.
The funds must be strictly routed through a dedicated business cash credit or export loan account, and payments are typically made directly to the suppliers of raw materials to guarantee the legitimate end-use of the funds.