Module: | MODULE A: INTERNATIONAL BANKING
Q130: Consider the following statements regarding a scenario where an exporter fails to ship the goods after availing packing credit, due to the sudden cancellation of the overseas order:
1. The exporter is legally permitted to liquidate the outstanding packing credit loan using the proceeds from the domestic sale of the manufactured goods.
2. Because the export order was cancelled due to reasons beyond the control of the exporter, the bank will continue to charge the concessional export interest rate for the entire duration of the loan.
3. The exporter has the option to transfer the packing credit advance to a substitute export order from a completely different overseas buyer, provided the goods are identical.
Which of the above statements is or are INCORRECT?
2. Because the export order was cancelled due to reasons beyond the control of the exporter, the bank will continue to charge the concessional export interest rate for the entire duration of the loan.
3. The exporter has the option to transfer the packing credit advance to a substitute export order from a completely different overseas buyer, provided the goods are identical.
Which of the above statements is or are INCORRECT?
✅ Correct Answer: B
🎯 Quick Answer:
Statement 2 is the only incorrect statement.Standard liquidation happens when the goods are shipped and the post-shipment bill is discounted.
Structural Breakdown: When an export order is cancelled, the exporter must repay the loan.
They can legally do this by selling the goods in the domestic market or by utilizing a substitute export order.
However, if the goods are not exported, the transaction fundamentally loses its status as an export activity.
Historical Context: The concessional interest rate is an economic subsidy provided by the government specifically to boost foreign exchange reserves.
If no foreign exchange is generated, the subsidy is strictly revoked to prevent structural misuse.
Causal Reasoning: Statement 2 is incorrect because if the goods are sold domestically and not exported, the bank will retroactively strip the concessional export interest rate starting from the very first day of the loan.
The loan will be treated as a standard commercial domestic advance, and a significantly higher penal commercial interest rate will be applied for the entire duration.