Skip to content

CS Professional · Strategic Management and Corporate Finance · Raising of Funds - Non Fund Based

While assessing a request for a letter of credit limit for import of raw materials, which of the following is the most relevant basis for fixing the limit?

The LC limit is fixed mainly on estimated import purchases and how long LCs remain outstanding, including usance and transit time. These determine the bank's actual contingent exposure. Share market capitalisation, authorised capital or dividend history do not measure that exposure.

  1. AEstimated import purchases during the credit period and the lag between opening the LC and paymentCorrect
  2. BOnly the market capitalisation of the borrower's shares
  3. CThe amount of the borrower's authorised share capital
  4. DThe borrower's past dividend payout ratio

Explanation

LC limits are assessed on the projected import requirement and the period for which LCs stay outstanding (usance plus transit and settlement time), along with the borrower's creditworthiness. Market capitalisation, authorised capital and dividend ratio do not measure the exposure the bank bears.

Did you get it right without looking?

One question tells you little. A timed set on Raising of Funds - Non Fund Based shows your real accuracy, how long you take and where you lose marks.

Practise Raising of Funds - Non Fund BasedFree diagnostic mock

More Raising of Funds - Non Fund Based questions