INSTITUTE OF BANKERS IN MALAWI

DIPLOMA IN BANKING EXAMINATION

SUBJECT: INTERNATIONAL TRADE FINANCE (IOBM –D202)

Date: Tuesday, 8th November 2016

Time Allocated: 3 hours (08:00 – 11:00 Hours)

INSTRUCTIONS TO CANDIDATES

1 This paper consists of TWO Sections, A and B.

2 Section A consists of 4 questions, each question carries 15 marks.

Answer ALL questions.

3 Section B consists of 4 questions, each question carries 20 marks. Answer

ANY TWO questions.

4 You will be allowed 10 minutes to go through the paper before the start of the
examination, you may write on this paper but not in the answer book.

5 Begin each answer on a new page.

6 Please write your examination number on each answer book used.

Answer books without examination numbers will not be marked.

7 All persons writing examinations without payment will risk expulsion from the
Institute.

8 If you are caught cheating, you will be automatically disqualified in all subjects
seated this semester.

9 DO NOT open this question paper until instructed to do so.

SECTION A (60 MARKS)

Answer ALL questions from this section.

QUESTION 1

a) What are Exchange Controls and how do they affect a citizen of Malawi?
(3 marks)
b) Mention and explain four documents required by authorized dealer banks in
order to approve application to pay for imports and their use. (12 marks)
(Total 15 marks)

QUESTION 2
a) Mention and discuss the three reasons why most companies do not use LCs in
their business. (6 marks)
b) Mention five risks that are covered under credit export insurance policy.
(5 marks)
c) What is the fundamental principal used in setting risk premiums in international
trade? (4 marks)
(Total 15 marks)

QUESTION 3

You have just been employed by Blessings Limited a multinational company as a

Chief Accountant and your Managing director has just read in the papers that the
cross border business will largely be affected by fluctuating exchange rates. Your
MD has asked you to research and briefly write a report about challenges to be
faced by your company with the fluctuating exchange rates and how your company
can survive in that situation. (Total 15 marks)

A qualification examined by the Institute of Bankers in Malawi

QUESTION 4
You are an accountant for X Company Limited and your Company is expected to
import a second hand vehicle from Japan for office use. You have been assigned to
source for the cheapest rates among the Authorized Dealer Banks on the market.
And below are some of the data that you have gathered.

Item A Bank B Bank C Bank D Bank E Bank

US Dollar amount 7,889.00 7,889.00 7,889.00 7,889.00 7,889.00

US Dollar exchange rate 743.0204 744.0327 746.0009 743.0309 743.0999

Exchange Control
Application Fee in MWK 10,000.00 12,000.00 10,500.00 7,500.00 9,800.00

Swift Charge in MWK 20,000.00 17,500.00 25,000.00 22,000.00 23,000.00

Required:
a) Calculate total cost in MWK for the cost of importing the vehicle from all the
Dealer Banks. Show all your workings. (12.5 marks)

b) Which Bank would you recommend for the importation of the vehicle?
(2.5 marks)
(Total 15 marks)

SECTION B (40 MARKS)

Answer ANY TWO questions from this section

QUESTION 5
a) Describe the procedures and steps in the establishment of a documentary letter
of credit. (12
marks)
b) Letters of Credit have certain advantages in foreign trade transactions not only
for exporters but also for importers. Discuss two advantages for each party.
(8
marks)
(Total 20 marks)

A qualification examined by the Institute of Bankers in Malawi

QUESTION 6

(a) Exchange controls affect trade through multiple effects. Discuss the
advantages and disadvantages of exchange controls. (10
marks)

(b) Discuss five major roles played by commercial banks in international trade.
(10 marks)
(Total 20 marks)

QUESTION 7

a) Define a bank draft stating its advantage and disadvantage. (5 marks)

b) Mention three factors that would determine a countries exchange rate and
explain how balance of payments would affect country’s exchange rate.
(5
marks)
c) Briefly explain five factors that impede free flow of international trade. (10
marks)
(Total 20 marks)

QUESTION 8

a) Describe the two types of factoring. (4 marks)

b) Define a letter of credit and state the parties to a letter of credit. (8 marks)

c) Briefly discuss the post shipment risks and the pre-shipment risks associated with
international trade. (8 marks)
(Total 20 marks)

END OF THE EXAMINATION PAPER

A qualification examined by the Institute of Bankers in Malawi