QA Series No 24 - LC Part 4

 

The Banking Tutor

Question Answer Series 2025

S No 34                                                                   06-08-2025

Letters of Credit – Part 4 

76. What is full form of EXW in the context of Incoterms? 

EXW stands for Ex Works. It is also known as Ex-Works or Ex-Factory. 

77. What is indicated by EXW in the context of Incoterms? 

The incoterm Ex Works (EXW) means that the seller delivers the goods at the buyer's disposal at the place of destination, such as a factory, warehouse, or workplace. Ex-works delivery term determines the maximum obligation on the buyer (the importer) and the minimum responsibility on the seller (the exporter). 

78. What is full form of FCA in the context of Incoterms? 

FCA stands for Free Carrier. 

79. What is indicated by FCA in the context of Incoterms? 

In the Free Carrier (FCA) delivery method, the seller delivers the cargo at a point requested by the buyer. An FCA point can be, for example, a train station or a port of shipment. 

At the FCA point, the buyer (importer) is responsible for loading and arranging transportation to its destination. The seller must ensure that the goods are ready for collection at a designated place of destination on time and in good condition. 

80. What is the main difference between FOB and FCA ? 

The main difference between FCA and FOB in container shipments is that the costs incurred at the loading port belong to the buyer in the form of FCA delivery and the seller in FOB delivery. According to the Free Carrier delivery method, the seller's responsibility ends when the buyer delivers the cargo or the loaded container to the point requested in the sale contract. 

81. What is the full form of FAS in the context of Incoterms? 

FAS stans for  Free Alongside Ship. 

82. What is indicated by FAS  in the context of Incoterms? 

In the form of Free Alongside Ship (FAS) delivery, the seller is obliged to deliver the goods at the port of shipment where the ship is located to the vessel's side.  From this point onwards, the seller's obligation ends and the buyer must take care of all costs and risks associated with the transportation of the goods. 

83. What is the full form of FOB in the context of Incoterms? 

FOB stands for Free On Board. 

84. What is indicated by FOB  in the context of Incoterms? 

In the form of Free on Board (FOB) delivery, the seller, the exporter, must deliver the cargo to the port requested by the buyer, i.e., the importer, according to the ship loading date. When determining the FOB Incoterms, the selling company must anticipate the inland shipping cost and the inland shipping time if a port is requested in a different location where the seller company is based.

85. What is the full form of CFR in the context of Incoterms? 

CFR stands for Cost and Freight. 

86. What is indicated by CFR  in the context of Incoterms? 

Cost and Freight (CFR) is when the supplier assumes all the risk for the shipment until the consignee collects the cargo at its final destination. The supplier must arrange and pay for the freight costs up to the port of delivery. 

87. What is the full form of CPT in the context of Incoterms? 

CPT stands for Carriage Paid To. 

88. What is indicated by CPT  in the context of Incoterms? 

The exporting company is responsible for the overseas shipment in the form of Carriage Paid To (CPT) delivery. The seller delivers the goods to the buyer at the place of destination in the importer's country. 

89. What is the full form of CIF in the context of Incoterms? 

CIF stands for Cost Insurance Freight.

90. What is indicated by CPT  in the context of Incoterms? 

In the form of Cost Insurance Freight (CIF) delivery, the seller organizes the international shipment process by undertaking the freight and insurance costs to be delivered to the buyer at a port in the importer's country. It is commonly used for containerized and bulk cargo. 

91. What is the full form of CIF in the context of Incoterms? 

CIP stands for Carriage and Insurance Paid to . 

92. What is indicated by CIP  in the context of Incoterms? 

According to the Carriage and Insurance Paid to (CIP) mode of transport, the exporter is responsible for all processes, except import customs clearance, until the goods are delivered to the importer's country. CIP mode of transportation is widely used in road vehicle transportation, and it is also a suitable incoterm for multimodal shipments. 

93. What is the full form of DPU in the context of Incoterms? 

Delivered at Place Unloaded (DPU) 

94. What is indicated by DPU  in the context of Incoterms? 

The Delivered at Place Unloaded (DPU) mode of transport entered into force with Incoterms 2020 rules instead of the DAT transport form in Incoterms 2010. As a result, the buyer bears all risks involved in bringing the goods to and unloading them at the place of destination. 

95. What is the full form of DAP in the context of Incoterms? 

DAP stands for Delivered At Place. 

96. What is indicated by DAP  in the context of Incoterms? 

Delivered At Place (DAP) is the delivery term describing a deal where the seller is responsible for all costs and responsibilities, excluding insurance and import customs. If the DAP has been accepted, the parties must specify who will obtain insurance and add it to the contract. 

97. What is the full form of DDP in the context of Incoterms? 

DDP stands for Delivered Duty Paid. 

98. What is indicated by DDP  in the context of Incoterms? 

DDP (Delivered Duty Paid) is the only Incoterms that require the seller covers all duties and taxes at the time of delivery. Therefore, the seller must bear all the costs and risks associated with delivering the goods. At first glance, it may seem similar to CIF, but they have their differences. 

99. What are the advantages and disadvantages of using Incoterms for international trade? 

The main benefits of using Incoterms are that they provide a common language across borders, make it easy to compare prices from different suppliers, and enable you to calculate your freight charges. The disadvantages of using Incoterms are that they may not cover every possible scenario, and sellers and buyers may have different preferences for their business. 

100. Which Incoterms are used in e-commerce transactions? 

Most B2B sales contracts will be either EXW, CPT, or CIF, while most B2C sales will be CPT or CIF. However, some B2C sales may be made using DDP instead of CPT or CIF. 

101. What Incoterms are used for air freight? 

Seven Incoterms may be used for air freight: EXW, FCA, CPT, CIP, DAT, DPU, and DDP. 

102. Can Incoterms be used for domestic shipments? 

Yes. Incoterms can be used for domestic shipping as long as both parties agree to the terms and conditions of the shipment. 

103. What Incoterms rules work best with letters of credit? 

The Incoterms that are most successful with letters of credit are CIF, CIP, CFR, or CPT. With all of these rules, delivery occurs before the primary carriage. 

104. Can you add qualifications or variations to Incoterms rules? 

Yes. Parties may add qualifications or variations to the Incoterms rules as long as they are not contrary to the terms of the Incoterms. However, any such qualification or variation should be clearly indicated in writing between both parties. Without an explicit agreement, it will be assumed that the applicable Incoterm is being used without any qualifications. 

105. Can we  Still Use Incoterms 2010? 

Exporters and importers who have included "Incoterms 2010 FOB" in the sales contracts have accepted the FOB delivery terms in "Incoterms 2010".  They should be stated correctly and clearly on the relevant shipping documents for them to be effective as a contract of sale.  

Next Issue  will be shared on 8^th  August  2025.

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BTL 811 Cost Disease (Baumol Effect)

 

The Banking Tutor’s Lessons

BTL 811                                                                   06-08-2025

Cost Disease (Baumol Effect) 

Cost disease also known as Baumol’s cost disease, refers to the increase in the wages of certain labourers even though their productivity or skill level has not risen commensurately. This happens because there is competition between various industries for the limited supply of labour. 

So, even if the productivity of their employees has not risen significantly, employers in many cases have no choice but to pay higher wages in order to prevent the movement of labourers to other higher-paying industries. It should be noted that labour is often a kind of non-specific resource that can be used across various industries. 

The Baumol effect, also known as Baumol's cost disease, describes the phenomenon where wages in low-productivity sectors, like healthcare and education, tend to rise in line with wages in high-productivity sectors, like manufacturing, even though their productivity may not increase at the same rate. This leads to a relative increase in the cost of goods and services in these low-productivity sectors, even though the quality or quantity of output may not improve. 

High-productivity sectors: Industries like manufacturing experience significant gains in output per worker due to technological advancements and automation. This allows them to pay higher wages without necessarily raising prices. 

Low-productivity sectors: Services like healthcare, education, and the arts often rely heavily on human labour and face limitations in achieving similar productivity gains. 

Wage equalization: Despite the lack of productivity growth, wages in these low-productivity sectors tend to rise to remain competitive with the higher wages offered in high-productivity sectors. This is because workers can move to higher-paying jobs if their current sector doesn't offer competitive wages. 

Cost disease is particularly noticeable in areas like healthcare and education, where costs have risen significantly over time.

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Daily Point 2152 - Deficit Spending

 

The Banking Tutor

                                Daily Point 2152

Deficit Spending

 

Deficit spending is when a government's expenditures exceed its revenues during a specific period, leading to a budget deficit, often used as a strategy to stimulate economic growth.

 

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Daily Point 2151 - Flight to Quality

 

The Banking Tutor

                                Daily Point 2151

Flight to Quality

 

Flight to quality occurs when investors in aggregate begin to shift their asset allocation away from riskier investments and into safer ones, for instance out of stocks and into bonds. Uncertainty in the financial or international markets usually causes this herd-like behaviour.

 

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Q A Series No 33 - Letters of Credit Part 3

 

The Banking Tutor

Question Answer Series 2025

S No 33                                                                   04-08-2025

Letters of Credit – Part 3 

52. What is a MAWB? 

MAWB stands for Master Airway Bill. A Master Air Waybill  is a non-negotiable transport document issued by an airline or its agent to a freight forwarder, acting as a receipt for the shipment and a contract of carriage for the entire journey from origin to destination. It consolidates multiple shipments from different forwarders under one document. 

53. What is a HAWB? 

HAWB stands for House Airway Bill. A House Air Waybill (HAWB) is a document issued by a freight forwarder to a shipper as a receipt for goods shipped via air freight, particularly when multiple shipments are consolidated into a single master shipment. It acts as a contract between the forwarder and the shipper, outlining the terms of the shipment and providing detailed information about the specific cargo. 

54. Who design Airway Bill ? 

The International Air Transport Association (IATA) designs and distributes air waybills. 

55. How many types of Airways Bills are designed and what are they? 

There are two types of AWBs—an airline-specific one and a neutral one. Each airline AWB must include the carrier’s name, head office address, logo, and air waybill number. Neutral air waybills have the same layout and format as airline AWBs; they just aren’t prepopulated. 

56. How many digits will be there in Airway Way Bill Number and how many copies are issued for one Air  Way Bill? Whether Paper Airway Bills are in use? 

An air waybill has 11 numbers and came with eight copies of varying colours. With the Multilateral Electronic Air Waybill Resolution 672, paper air waybills are no longer required. Dubbed the e-AWB, it’s been in use since 2010 and became the default contract for all air cargo shipments on enabled trade lines. 

57. What is full form of SGS Clause ? 

SGS stands for Société Générale de Surveillance.

58. What is the SGS Clause? 

In a Letter of Credit (LC), the SGS clause refers to a requirement for a third-party inspection, typically by SGS (Société Générale de Surveillance), to verify the quality and quantity of goods before shipment. This clause is included to assure the buyer that the goods meet their specified requirements and to minimize the risk of discrepancies between the ordered goods and the shipped goods. 

59. What is the purpose of SGS Clause? 

The SGS clause is a quality control measure in international trade transactions. 

60. What is Lloyd's Certificate ? 

Lloyds Certificate is a certificate issued by Lloyds Registry of Shipping certifying the age, classification and seaworthiness of the vessel in order to ensure marine insurance cover under Institute Classification Clause. 

61. What is meant by Devolvement of LC? 

If the buyer fails to pay the amount to the seller the letter of credit is called devolved. In that case, the issuing bank or buyer's bank has to pay for the goods owned by the buyer. 

62. What is full form of UCP 600 and what it is ? 

UCP 600  stands for Uniform Customs & Practice for Documentary Credits (UCPDC). UCP 600 is a set of rules agreed by ICC (the International Chamber of Commerce), which apply to finance institutions which issue Letters of Credit – financial instruments helping companies finance trade. 

63. How many Articles are there in UCP 600? 

UCP 600 contains 39 Articles. 

64. What is eUCP ? 

The eUCP is a supplement and digital companion to the UCP 600 in purely digital form, allowing a quicker and safer way for financing trade. 

65. What is Standby LC? 

Standby Letter of Credit (SBLC / SLOC) is a guarantee that is made by a bank on behalf of a client, which ensures payment will be made if their client cannot fulfil the payment. 

66. What is the difference between SBLC and LC ? 

An SBLC is paid when called on when conditions have not fulfilled. However, a Letter of Credit is the guarantee of payment when certain conditions are fulfilled and documents received from the selling party. In the event that there is non-payment, the seller will present the SBLC to the buyer’s bank so that payment is received. 

A letter of credit is a short-term instrument, where the expiry is usually 90 days. A standby letter of credit is a long-term instrument, (validity is usually one year or so.) 

67. What is the difference between SBLC and Bank Guarantee ? 

Level playing field - Bank Guarantees (except for those under UDRG 758 ) are subject to a certain law and jurisdiction, which is either that of the applicant or the beneficiary. However, in case of SBLC, the underlying rules are either UCP or ISP. 

Expiry date - a guarantee can be open ended, a SBLC can not be open ended. 

68. What is ISP-98? 

ICC (International Chamber of Commerce) formulated a separate set of rules relating to SBLC in 1998 known as International Standby Practices (ISP-98), ICC Publication No 590 which has come into force on 01-01-1999.  ISP- 98 reflects the generally accepted practices, customs and usage of Standby LCs. 

69. What is full form of Incoterms and what is the purpose of the Incoterms? 

“Incoterms” is an acronym standing for international commercial terms. These are common terms to be used in International Trade and developed by ICC (International Chamber of Commerce. Different practices and legal interpretations between traders around the world necessitated a common set of rules and guidelines. As a response, ICC published the first Incoterms® rules in 1936. 

70. What is the latest version of Incoterms? 

The latest version of Incoterms 2020 were released in January 2020 to reflect the latest developments in international trade practices. The new version has incorporated many improvements and updates to the existing Incoterms 2010. 

71. How many Terms are there in Incoterms 2020? 

Both in Incoterms 2010 and 2020 there are 11 terms. 

72. What is the main difference between Incoterms 2010 and 2020? 

In Incoterms 2010, there is no mention of any safety and security measures taken by the seller while in the 2020 version of Incoterms, it is clearly mentioned that the seller is required to take any necessary measures for the safety and security of the goods during transportation process and pay for any necessary charges involved (where the seller is responsible for such measures). 

73. In how many categories Incoterms are classified and what are they ? 

The Incoterms are divided into four principal categories: E, F, C and D. 

Category E (Departure), which contains only one trade term, i.e. EXW (Ex Works). 

Category F (Main Carriage Unpaid), which contains three trade terms - FCA (Free Carrier) ; FAS (Free Alongside Ship) and FOB (Free on Board) 

Category C (Main Carriage Paid), which contains four trade terms - CPT (Carriage paid to) ; CIP (Carriage and Insurance paid to); CFR (Cost and Freight) ; CIF (Cost, Insurance and Freight) 

Category D (Arrival), which contains three trade terms - DAP (Delivered at Place) ; DPU (Delivered at Place Unloaded) and DDP (Delivered Duty Paid). 

74. What are the Incoterms applicable for any mode of transport ? 

Incoterms for any mode of transport: EXW, FCA, CPT, CIP, DPU, DAP and DDP. 

75. What are the Incoterms applicable for Sea & Inland Waterway transport ? 

Incoterms only for sea and inland waterway transport: FAS, FOB, CFR and CIF. 

Next Issue  will be shared on 6^th  August  2025.

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Daily Point 2150 - Time-Varying Volatility

 

The Banking Tutor

                                Daily Point 2150

Time-Varying Volatility 

Time-varying volatility refers to the fluctuations in volatility over different time periods. Investors may choose to study or consider the volatility of an underlying security during various time periods. 

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BTL 810 - PM VBRY

 

The Banking Tutor’s Lessons

BTL 810                                                                   03-08-2025

PM VBRY (PM Viksit Bharat Rozgar Yojana) 

PM-VBRY is an Employment-linked incentive (ELI) scheme launched by Ministry of Labour & Employment,  GoI to incentivize job creation, particularly for first-time employees and in the manufacturing sector. 

The scheme is effective from August 1, 2025. The name is in alignment with the scheme’s overall objectives towards the Viksit Bharat initiative and reflects the Government’s commitment to generating inclusive and sustainable employment opportunities in the country. 

The Union Cabinet had approved this scheme, with an outlay of Rs 99,446 Crore. It aims to incentivize the creation of more than 3.5 Crore jobs in the country, over a period of 2 years. Out of these, 1.92 Crore beneficiaries will be first timers, entering the workforce. 

The benefits of the Scheme would be applicable to jobs created between 01 August 2025 and 31 July 2027. 

The Scheme consists of two parts with Part A focused on first timers and Part B focused on employers: 

Part A: Incentive to First-Time Employees: 

Targeting first-time employees registered with EPFO, this Part will offer one-month EPF wage up to Rs 15,000 in two installments. Employees with salaries up to Rs 1 lakh will be eligible.

The 1 installment will be payable after 6 months of service and the 2 installment will be payable after 12 months of service and completion of a financial literacy programme by the employee. To encourage the habit of saving, a portion of the incentive will be kept in a savings instrument or deposit account for a fixed period and can be withdrawn by the employee at a later date. 

All payments to the First Time Employees under Part A of the Scheme will be made through DBT (Direct Benefit Transfer) mode using the Aadhar Bridge Payment System (ABPS). 

Incentives for Employers (Part B) 

EPFO-registered employers must hire a minimum number of additional employees for at least six months to qualify for benefits. 

Employers with less than 50 employees need to hire at least two additional employees, while those with 50 or more employees need to hire at least five additional employees. 

The scheme supports job creation across all sectors, with a special emphasis on manufacturing. 

The employers will get incentives in respect of employees with salaries up to Rs 1 lakh. The Government will incentivize employers, up to Rs 3000 per month, for two years, for each additional employee with sustained employment for at least six months. For the manufacturing sector, incentives will be extended to the 3 and 4 years as well. 

Payments to the Employers under Part B will be made directly into their PAN-linked Accounts. 

The incentive structure will be as under: 

EPF Wage Slabs of Additional Employee	Benefit to the Employer (per additional employment per month)
Up to Rs 10,000*	Up to Rs 1,000
More than Rs 10,000 and up to Rs 20,000	Rs 2,000
More than Rs 20,000 (up to salary of Rs 1 Lakh/month)	Rs 3,000

*Employees with EPF wages up to Rs. 10,000 will get a proportional incentive. 

PM-VBRY provides incentives to employers and first-time employees to stimulate job creation, contributing to India's economic growth and the "Viksit Bharat" initiative. 

Sekhar Pariti

+91 9440641014