Trade Finance and Remittance Overview

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Questions and Answers

What is the primary purpose of trade?

To buy and sell goods for profit (correct)

To regulate the banking system

To provide goods for free

To create government policy

Which document does a buyer commonly use to place an order for goods?

Bill of Lading

Insurance Policy

Purchase Order (correct)

Sales Invoice

How do banks contribute to the trade process?

They handle actual goods

They manufacture goods for sale

They provide transportation for goods

They facilitate payments and provide financing (correct)

What benefits do buyers seek from trade transactions?

Goods at the right time, place, quality, and cost Signup and view all the answers

What role does a seller or exporter perform in trade?

Manufactures, sells, and exports goods Signup and view all the answers

Which document is typically used to transport goods during trade?

Bill of Lading/Airway Bill Signup and view all the answers

What is one of the main ways the Philippine Veterans Bank earns revenue in trade?

Through commission, interest, fees, and exchange gains Signup and view all the answers

What function do regulatory agencies serve in trade?

To ensure compliance and inspect goods Signup and view all the answers

What does the PAS6 system primarily handle?

The settlement of duties and taxes Signup and view all the answers

Which step is NOT part of the PAS6 transaction processing?

Conducting a market analysis of potential exporters Signup and view all the answers

What is the first action an importer/exporter must take to use PAS6?

Open an account with a Private Bank (PVB) Signup and view all the answers

What role does the Trade and International Operations Department play?

They implement trade finance and remittance transactions Signup and view all the answers

What is required for all stakeholders before they can execute transactions in PAS6?

Enrollment in the PAS6 system Signup and view all the answers

What is the primary role of the Issuing Bank in a Letter of Credit arrangement?

To guarantee payment to the Exporter according to LC terms. Signup and view all the answers

Which set of rules governs the process of bank-to-bank reimbursements?

URR 725 Signup and view all the answers

Under which Uniform Rules would banks handle documents against acceptance?

URC 522 Signup and view all the answers

What does UCP stand for in the context of international trade?

Uniform Customs and Practices Signup and view all the answers

Which document outlines the rights and obligations under demand guarantees?

URDG 758 Signup and view all the answers

Which of the following is NOT explicitly covered by UCP 600?

Standby letters of credit Signup and view all the answers

What does a Letter of Credit allow the Exporter to receive upon meeting its terms?

Payment against presentation of shipment documents. Signup and view all the answers

Which organization produces international rules that are binding unless modified?

International Chamber of Commerce Signup and view all the answers

What is a key responsibility of the buyer under a Trust Receipt Agreement?

To keep the goods insured to their full value. Signup and view all the answers

Which document is NOT required for TR booking?

Letter of Credit Signup and view all the answers

What is the main purpose of the Trust Receipt Law?

To allow buyers to hold goods without payment. Signup and view all the answers

How does Documents against Payment (D/P) function in international trade?

Documents are released only after payment of the draft. Signup and view all the answers

What is one of the main implications of using a Trust Receipt?

The bank retains ownership of the goods until paid. Signup and view all the answers

Which piece of information is important to remember regarding the Bill of Lading in relation to the Trust Receipt?

It must be consigned to Philippine Veterans Bank. Signup and view all the answers

What happens if the buyer fails to sell the goods under a Trust Receipt Agreement?

The buyer is required to return the goods upon bank's demand. Signup and view all the answers

What is a common characteristic of non-Letters of Credit payment methods in international trade?

They are typically used when trust between buyer and seller is established. Signup and view all the answers

What is the main characteristic of Documents against Payment (D/P)?

Documents are provided only upon acceptance of a draft. Signup and view all the answers

What distinguishes an Open Account Arrangement (O/A) from other payment methods?

Payment terms can extend beyond 360 days as allowed by BSP. Signup and view all the answers

In a Direct Remittance (D/R) agreement, what is the payment timeline?

Payment must be completed within 29 calendar days from shipment date. Signup and view all the answers

What is the purpose of Advance Payment (A/P) in a transaction?

To finance production for custom-made goods prior to shipment. Signup and view all the answers

Which of the following best describes the procedure for Export Bills Purchased?

Funds are advanced to the exporter before the Issuing Bank reimburses. Signup and view all the answers

How does the bank function in an Open Account Arrangement (O/A)?

The bank acts only as the remitting agent. Signup and view all the answers

Which of the following statements is true regarding bank involvement in Direct Remittance (D/R)?

The bank acts as a remitting agent for the transaction. Signup and view all the answers

What conditions apply to an Open Account Arrangement (O/A) with respect to payment timing?

Payments must be made at least 30 days after shipment. Signup and view all the answers

Study Notes

Trade and International Operations Department (TIOD)

TIOD is responsible for implementing Trade Finance and Remittance transactions.
TIOD works within internal and external policies, rules, and regulations as well as agreed Service Level Agreements.

What is Trade?

Trade involves commercial buying and selling with profit, both domestically and internationally.

Why do we trade?

Philippine Veterans Bank generates income through commissions, interest, fees, and exchange gains from import and export products.
Payments for these products adhere to acceptable methods outlined by the Bangko Sentral ng Pilipinas (BSP).

Parties Involved in Trade

Buyer/Importer: Places import orders and purchases goods. Creates a Purchase Order.
Seller/Exporter: Manufactures, sells, and exports goods. Creates a Sales Invoice.
Transport Company/Carrier: Transports goods. Creates a Bill of Lading or Airway Bill.
Insurance Company: Insures goods against risk. Creates an insurance policy.
Regulatory Agencies: Govern import and export processes, and inspect goods - such as Customs and the Bureau of Internal Revenue
Banks: Process payments and provide financing for trade transactions.

Why are banks important in Trade?

Banks facilitate and manage payments between buyers and sellers.
They offer financing options to both parties involved in a trade transaction.
Banks focus on documents related to the trade transaction, not the actual goods themselves.

Goals of Buyers and Sellers in Trade

Buyer:
- Wants to receive goods on time, in the right place, with the correct quality and quantity.
- Desire for extended payment terms whenever possible.
- Aims for lower costs and minimal complications (e.g., credit limits).
Seller:
- Seeks to ensure timely payment.
- Desires immediate payment for their goods or services.

Rules Governing Trade

International Chamber of Commerce (ICC Publications):
- UCP 600: Uniform Customs and Practice for Documentary Credits (July 2007). This rule sets the standard for documentary credits.
- URR 725: Uniform Rules for Bank-to-Bank Reimbursements. These rules apply to bank-to-bank reimbursements if the authorization text explicitly incorporates them.
- URC 522: Uniform Rules for Collections. These rules outline the procedures banks should follow for documents against acceptance (D/A) and documents against payment (D/P).
- URDG 758: Uniform Rules for Demand Guarantee. These rules govern the rights and obligations of parties within demand guarantees.
- ISP 98: International Standby Practices. These rules govern the rights and obligations of parties within standby letters of credit.
Bangko Sentral ng Pilipinas (BSP):
- Manual of Regulations for Banks (MORB):
- Manual of Regulations on Foreign Exchange Transactions (FX Manual):
- BSP Circular 925, 1030, 1124, etc.:
Other Government Agencies:
- Bureau of Customs
- Bureau of Internal Revenue
Philippine Veterans Bank Internal Policies and Procedures:

Trade Products and Services

Letter of Credit:
- An agreement where an issuing bank commits to pay a third party (beneficiary) upon presentation of documents proving shipment or service delivery.
- The bank acts as the issuing bank's representative, instructed by the customer.

Requirements for issuing a Letter of Credit

Application form for shipping guarantee
Undertaking for delivery of goods without the original Bill of Lading
Copies of the shipping documents
Duly signed Trust Receipt Agreement
Duly signed Draft
Fire insurance policy

Trust Receipt (TR)

The bank allows the buyer to receive imported goods but retains ownership.
The buyer holds the goods "in trust" for the bank.

Obligations of the Buyer under a Trust Receipt Agreement

Maintain adequate insurance for the full value of the goods.
Hand over proceeds from the sale of the goods to the bank for payment.
Keep the goods, manufactured products, or proceeds from them separate and identifiable as the bank's property.
Return the goods to the bank upon demand if they are unsold.

Trust Receipt Law (Presidential Decree 115)

The Trust Receipt Law makes it a criminal offense to commit certain actions related to trust receipts.

Goods Covered by Trust Receipts

Goods intended for resale.
Raw materials for manufacturing or processing, with the purpose of eventual sale.

Requirements for Obtaining a Trust Receipt

Duly signed Trust Receipt Agreement
Duly signed Draft
Fire insurance coverage for the goods.

Key Fact Regarding Trust Receipts

The Bill of Lading must be consigned to Philippine Veterans Bank.

Why are Trust Receipts Used?

The bank maintains ownership of the goods.
The agreement is short-term.
Proceeds from the sale go to the beneficiary.
Provides proof of business activity.
Criminal liability is associated with misusing the goods.

Non-Letters of Credit (Alternative Payment Methods)

These options are used in international trade when buyers and sellers have established business relationships and a high level of trust.
Documents Against Payment (D/P):
- The supplier submits original documents to their bank abroad.
- The bank sends the shipping documents to the buyer's bank with instructions to release them only upon payment of the draft.
- The bank acts as the collecting agent.
Documents Against Acceptance (D/A):
- The supplier submits original documents to their bank abroad.
- The bank sends the documents to the buyer's bank with instructions to release them upon acceptance of the draft, which matures at a future date.
Open Account Arrangement (O/A):
- The supplier sends the original shipping documents directly to the buyer.
- Payment is made at a predetermined future date, agreed upon by both parties.
- The bank acts as a remitting agent.
- Payment is due within 30 days after shipment. BSP permits longer tenors (up to 360 days).
Direct Remittance (D/R):
- the supplier sends the original documents directly to the buyer.
- Payment is made at sight.
- The bank acts as a remitting agent.
- Payment must be made within 29 calendar days from the shipment date.
Advance Payment (A/P):
- The seller requires full or partial payment before shipment.
- This is often used for custom-made goods, equipment, or when the seller needs to secure production financing.
- The bank acts as a remitting agent in these scenarios.

Export Documentation

All export shipments require an Export Declaration using a specified form.
Authorized Agent Banks (AABs) need these forms for record-keeping.

Export Document Handling

Export Bills Purchased: The bank advances funds to the exporter (beneficiary) by purchasing export documents. Reimbursement is later received from the issuing bank.
Export Bills for Collection: Drafts and documents are sent to the opening bank for payment. The exporter's account is credited upon receipt of payment from the buyer's bank.

Advance/Final Duties

Payment of import/export duties and taxes to the Bureau of Customs (BOC) is required to release goods.
Payment Abstract Secure System 6 (PASS 6):
- A secure electronic system handles the settlement of duties and taxes.
- Required by all Authorized Agent Banks (AABs).
- All stakeholders must enroll in PAS6 before using the system.
- Payments are made via debit from existing Current Account/Savings Account (CASA, cleared funds).

PAS6 Transaction Procedure

Importer/Exporter establishes an account with Philippine Veterans Bank.
Enroll in PAS6:
- Complete the PAS6 AAB Enrollment Form.
- Provide a Bureau of Customs Certificate of Registration.
Submit documents to Trade Services.
The bank issues an AAB Ref. No. (Authorized Agent Bank Number) and informs the importer/exporter.
The broker can now lodge import/export declarations in the e2m portal, which is transmitted to the AAB through PAS6.
Trade Services collects payment and confirms it using PAS6.

Remittance Channels

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Trade and International Operations Department Team

Responsible for the timely and accurate execution of Trade Finance and Remittance transactions.
The team follows established internal and external policies, rules, regulations, and Service Level Agreements.

Organizational Structure

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The diagram shows "Organizational Structure" but no details are given.

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Description

This quiz covers the essentials of Trade Finance and Remittance transactions as managed by the Trade and International Operations Department (TIOD). It includes the parties involved in trade, the reasons for engaging in trade, and the significance of adhering to policies and regulations. Test your knowledge on the intricacies of international trade!