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What is the primary purpose of pre-shipment finance?
What is the primary purpose of pre-shipment finance?
Which of the following is NOT typically covered by pre-shipment finance?
Which of the following is NOT typically covered by pre-shipment finance?
Which document is essential for a seller to obtain pre-shipment finance?
Which document is essential for a seller to obtain pre-shipment finance?
What can sellers use the funds acquired through pre-shipment finance for?
What can sellers use the funds acquired through pre-shipment finance for?
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What is a common term for pre-shipment finance used in India?
What is a common term for pre-shipment finance used in India?
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When does the financier debit the seller's account in the pre-shipment finance process?
When does the financier debit the seller's account in the pre-shipment finance process?
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What typically happens prior to approving a pre-shipment finance request?
What typically happens prior to approving a pre-shipment finance request?
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What must a seller do to use pre-shipment finance effectively?
What must a seller do to use pre-shipment finance effectively?
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What is the purpose of pre-shipment finance?
What is the purpose of pre-shipment finance?
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Which document is required for obtaining pre-shipment finance?
Which document is required for obtaining pre-shipment finance?
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What is the primary purpose of Extended Packing Loans?
What is the primary purpose of Extended Packing Loans?
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How quickly can businesses raise funds through invoice discounting services from KredX?
How quickly can businesses raise funds through invoice discounting services from KredX?
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Which type of pre-shipment finance requires the issuance of a letter of credit to suppliers?
Which type of pre-shipment finance requires the issuance of a letter of credit to suppliers?
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Post-shipment finance is primarily obtained for what purpose?
Post-shipment finance is primarily obtained for what purpose?
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What differentiates a Red Clause Letter of Credit from a Green Clause Letter of Credit?
What differentiates a Red Clause Letter of Credit from a Green Clause Letter of Credit?
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Which of the following best describes the difference in timing between pre-shipment and post-shipment finance?
Which of the following best describes the difference in timing between pre-shipment and post-shipment finance?
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Secured Shipping Loans are sanctioned based on which of the following?
Secured Shipping Loans are sanctioned based on which of the following?
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What type of finance allows businesses to maintain cash flow between shipment and payment?
What type of finance allows businesses to maintain cash flow between shipment and payment?
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What must businesses provide to obtain Packing Credit For Imports?
What must businesses provide to obtain Packing Credit For Imports?
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What is one common characteristic of pre-shipment finance options?
What is one common characteristic of pre-shipment finance options?
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In the context of post-shipment finance, what is meant by 'Export Bills Negotiated under L/C'?
In the context of post-shipment finance, what is meant by 'Export Bills Negotiated under L/C'?
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Which of the following best describes Advances Against Export Incentives?
Which of the following best describes Advances Against Export Incentives?
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What is a requirement for issuing a Red Clause Letter of Credit in India?
What is a requirement for issuing a Red Clause Letter of Credit in India?
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In what scenarios would Advances Against Back-To-Back Letter Of Credit not be applicable?
In what scenarios would Advances Against Back-To-Back Letter Of Credit not be applicable?
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What condition must be met for post-shipment finance to be increased through the purchase or discount of export bills?
What condition must be met for post-shipment finance to be increased through the purchase or discount of export bills?
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When is post-shipment finance available against goods sent on a consignment basis?
When is post-shipment finance available against goods sent on a consignment basis?
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What is the purpose of the advance against duty drawback for exporters?
What is the purpose of the advance against duty drawback for exporters?
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What does retention money refer to in the context of export contracts?
What does retention money refer to in the context of export contracts?
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Under what circumstance might post-shipment finance be offered for undrawn balances?
Under what circumstance might post-shipment finance be offered for undrawn balances?
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Which financing option is available only when export bills under L/C create issues?
Which financing option is available only when export bills under L/C create issues?
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What does the bank require from the exporter when offering advances against export bills for collection?
What does the bank require from the exporter when offering advances against export bills for collection?
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How long is post-shipment finance against retention money typically offered for?
How long is post-shipment finance against retention money typically offered for?
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Which types of exporters are eligible for post-shipment finance?
Which types of exporters are eligible for post-shipment finance?
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What document is necessary to prove that goods are shipped for export purposes?
What document is necessary to prove that goods are shipped for export purposes?
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What is one of the primary purposes of post-shipment finance?
What is one of the primary purposes of post-shipment finance?
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What percentage of the GST value can post-shipment finance cover?
What percentage of the GST value can post-shipment finance cover?
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Which organization can exporters refinance their loans from if using post-shipment finance?
Which organization can exporters refinance their loans from if using post-shipment finance?
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What is the maximum loan amount that commercial banks can provide to exporters under post-shipment finance?
What is the maximum loan amount that commercial banks can provide to exporters under post-shipment finance?
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In addition to filling financial gaps, what else can post-shipment finance help exporters cover?
In addition to filling financial gaps, what else can post-shipment finance help exporters cover?
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Which of the following is NOT a purpose of post-shipment finance?
Which of the following is NOT a purpose of post-shipment finance?
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Study Notes
Pre-Shipment Finance
- Definition: Pre-shipment finance is a credit facility that helps businesses cover expenses incurred before exporting goods or services.
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Purpose: It addresses working capital needs during the pre-shipment phase, such as:
- Procuring raw materials
- Covering manufacturing costs
- Packaging expenses
- Pre-shipment expenses
- Wages and salaries
- Eligibility: Typically accessible to exporters or suppliers of export goods.
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Documentation: Common documentation includes:
- Purchase orders
- Bank guarantees issued to the seller
- Documentary or standby letters of credit
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Types of Pre-Shipment Finance:
- Extended Packing Loan: An advance provided to acquire raw materials, later converted to a collateralized loan.
- Advances Against Back-to-Back Letter Of Credit: The exporter's bank issues a letter of credit to their suppliers, enabling them to purchase materials.
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Red Or Green Clause Letter Of Credit:
- Red Clause: Allows for cash advances to the beneficiary for purchasing goods and initiating export, offering partial or full payment depending on terms and documents.
- Green Clause: Provides credit for storing goods at the port, allowing the beneficiary to access funds and utilize storage facilities.
- Secured Shipping Loans: Funds available after goods are converted into finished items and shipped, often secured with rail or lorry receipts.
- Advances Against Export Incentives: Cash advances are provided against export incentives like duty drawbacks after shipment.
- Packing Credit For Imports Against Entitlements Under Advance Licence: A facility available to manufacturers of export goods, where pre-shipment finance is provided based on a letter of credit and the use of imported materials for export production.
Post-Shipment Finance
- Definition: Post-shipment finance provides working capital support after goods are shipped, bridging the gap between shipment and payment.
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Types of Post-Shipment Finance:
- Export Bills Negotiated under L/C: The exporter's bank negotiates the export bills and provides post-shipment finance upon submission of required documents.
- Purchase/Discount of Export Bills: Post-shipment finance can be offered through purchasing or discounting export bills outside letter of credit scenarios.
- Advance against Bills sent for Collection: Post-shipment finance is provided when the export bills are not covered under a letter of credit, or if specific circumstances require it.
- Advance against Goods sent on Consignment Basis: Post-shipment finance is issued after goods are sold on consignment, with the exporters' bank in the importing country delivering documents against a trust receipt.
- Advance against Duty Drawback: Exporters receive incentives like duty drawback (DBK) from the government after shipment, with banks providing pre and post-shipment finance options.
- Advance against Undrawn Balances: Post-shipment finance is provided for undrawn balances that arise from unutilized credit limits or adjustments for differences in rates, weight, or quality.
- Advance against Retention Money: In capital goods export contracts, banks offer post-shipment finance against retention money (unpaid amounts held back by the importer until project completion).
- Advance against Deferred Payments: In capital goods or construction contracts, banks provide post-shipment finance for deferred payments received in installments.
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Features of Post-Shipment Finance:
- Eligibility: Available to various exporters, including merchant exporters, manufacturer exporters, export houses, trading houses, and manufacturers supplying goods to export houses, trading houses, or merchant exporters.
- Documentary Evidence: Exporters must provide shipping documents, necessary documents confirming the credit facility, and a letter from the export house certifying export-bound goods.
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Purpose: Post-shipment finance is used to:
- Fill the gap between shipment and payment
- Cover insurance charges
- Pay ECGC premium
- Pay commissions and brokerage
- Fund export promotion activities
- Amount of Finance: Post-shipment finance can reach up to 100% of the GST value of exported goods. Loans up to Rs. 10 crore are provided by commercial banks and can be refinanced by EXIM Bank. Loans above Rs. 10 crore and up to Rs. 50 crore are also offered by EXIM Bank.
Key Differences Between Pre-Shipment and Post-Shipment Finance:
| Parameter | Pre-Shipment Finance | Post-Shipment Finance |
|---|---|---|
| Purpose | Supports working capital before shipment | Supports working capital after shipment |
| Time of Credit | Before goods are shipped | After goods are shipped |
| Required Documents | Letter of credit or export order | Export shipping documents |
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Description
This quiz covers the essential aspects of pre-shipment finance, including its definition, purpose, and eligibility criteria. Learn about the types of financing available and the necessary documentation involved in the pre-shipment phase of exportation.
