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ASSIGNMENT SOLUTIONS GUIDE (2014-2015)

I.B.O-5
International Marketing Logistics
Disclaimer/Special Note: These are just the sample of the Answers/Solutions to some of the Questions given in the
Assignments. These Sample Answers/Solutions are prepared by Private Teacher/Tutors/Auhtors for the help and Guidance
of the student to get an idea of how he/she can answer the Questions of the Assignments. We do not claim 100% Accuracy
of these sample Answers as these are based on the knowledge and cabability of Private Teacher/Tutor. Sample answers
may be seen as the Guide/Help Book for the reference to prepare the answers of the Question given in the assignment. As
these solutions and answers are prepared by the private teacher/tutor so the chances of error or mistake cannot be denied.
Any Omission or Error is highly regretted though every care has been taken while preparing these Sample Answers/
Solutions. Please consult your own Teacher/Tutor before you prepare a Particular Answer & for up-to-date and exact
information, data and solution. Student should must read and refer the official study material provided by the university.
Q. 1. What is economic exposure? Explain the method of market initiative as a hedging technique of economic
exposure.
Ans. Economic exposure increases as foreign exchange volatility rises, and decreases as it falls. Economic exposure
is obviously greater for multinational companies that have numerous subsidiaries overseas and a huge number of transactions involving foreign currencies. However, economic exposure can arise for any company regardless of its size and
even if it only operates in domestic markets. For example, small European manufacturers that only sell in their local
markets and do not export their products would be adversely affected by a stronger euro, since it would make imports
from other jurisdictions such as Asia and North America cheaper and increase competition in European markets. Economic exposure can be mitigated either through operational strategies or currency risk mitigation strategies. Operational
strategies involve diversification of production facilities, end-product markets and financing sources, since currency
effects may offset each other to some extent if a number of different currencies are involved. Currency risk-mitigation
strategies involve matching currency flows, risk-sharing agreements and currency swaps.
Almost all corporate treasurers have found economic exposure management to be the most difficult and onerous,
indeed a terrifying challenge, but perhaps also the most exciting, and occasionally as a rewarding activity. The appropriate response to an anticipated or actual real exchange rate change depends crucially on the length of time that real change
is expected to persist. A longer lasting change in the real exchange rate will definitely induce firm to take major long term
decisions for their permanent management. MNCs with their concentrated networks in a few countries are not capable of
effectively reducing their economic exposure. As different exchange rates are not perfectly correlated, a firm can also
reduce economic exposure impact by diversifying cash flows over different currencies. So, only those MNCs that have
greater breadth of operations are better equipped to effectively manage their economic exposure.
Various strategies can be applied to manage economic exposure such as financial derivatives and real strategies.
Financial derivatives include currency forward, future, option and swap contracts. Currency forward is an agreement to
exchange a specific quantity of a specific currency for another currency on a specified future date at an agreed forward
rate. Currency future contracts are exchange regulated forward contracts. These agreements are obligation for both of the
parties. Whereas currency option is an agreement which provides option to option holder to buy (or sell) one currency in
exchange of another currency at an agreed price, on or before the agreed date but has no corresponding obligation.
Currency swap includes simultaneous purchase and sale of one currency for another, where the two contracts have
different dates. Usage of these financial derivatives is helpful in reducing economic exposure up to some extent but these
do not provide permanent solution to mitigate economic exposure. Permanent solution to this problem is usage of real
strategies which include diversification, reconstruction and reallocation of resources.
Q. 2. What is letter of credit? What are its types? How does it protect the interests of buyer and seller?
Ans. Letters of Credit are documents that prove the seller has performed the duties specified by an underlying
contract (e.g., the sale of goods contract) and the goods/services have been supplied as agreed. In return for these documents, the beneficiary receives payment from the financial institution that issued the letter. A letter of credit may often be

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provided to waive a deposit or to prove that the buyer has a proven upstanding financial background. The letter of credit
serves as a guarantee to the seller that it will be paid regardless of whether the buyer ultimately fails to pay.
Letters of credit are used primarily in international trade for transactions between a supplier in one country and a
purchaser in another. Most letters of credit are governed by rules promulgated by the International Chamber of Commerce
known as Uniform Customs and Practice for Documentary Credits (latest version: UCP 600). They are also used in land
development to ensure that approved public facilities (streets, sidewalks, storm water ponds, etc.) will be built. The
parties to a letter of credit are the supplier, usually called the beneficiary, the issuing bank, of whom the buyer is a
client, and sometimes an advising bank, of whom the beneficiary is a client. Almost all letters of credit are irrevocable,
i.e., cannot be amended or canceled without mutual consent of all parties. In executing a transaction, letters of credit
incorporate functions common to giros and travelers cheques.
Types:
Import/export: The same credit can be termed an import or export LC depending on whose perspective is considered. For the importer it is termed an Import LC and for the exporter of goods, an Export LC.
Revocable: The buyer and the bank that established the LC are able to manipulate the LC or make corrections
without informing or getting permissions from the seller. According to UCP 600, all LCs are irrevocable, hence this type
of LC is obsolete.
Irrevocable: Any changes (amendment) or cancellation of the LC (except it is expired) is done by the applicant
through the issuing bank. It must be authenticated and approved by the beneficiary.
Confirmed: An LC is said to be confirmed when a second bank adds its confirmation (or guarantee) to honor a
complying presentation at the request or authorization of the issuing bank.
Unconfirmed: This type does not acquire the other banks confirmation.
Transferrable: The exporter has the right to make the credit available to one or more subsequent beneficiaries.
Credits are made transferable when the original beneficiary is a middleman and does not supply the merchandise, but
procures goods from suppliers and arranges them to be sent to the buyer and does not want the buyer and supplier know
each other.
The middleman is entitled to substitute his own invoice for the suppliers and acquire the difference as profit. Importers and exporters regularly use letters of credit to protect themselves. Working with an overseas buyer can be risky
because you don't necessarily know who youre working with. A letter of credit spells out the details so that everybody's
on the same page.
Q. 3. Write short notes on the following.
(a) ABC Technique
Ans. This approach was originally created by psychologist, Dr. Albert Ellis. It was then adapted by Dr. Martin
Seligman, a University of Pennsylvania professor. Seligmans adapted version was published in his 1990 book, Learned
Optimism.
ABC stands for:
Adversity.
Beliefs.
Consequences.
In short, we encounter Adversity (or, an Activating Event, as per Elliss original model). How we think about this
creates Beliefs. These beliefs then influence what we do next, so they become Consequences. Heres an example you
yell at your assistant because she forgot to print a key report before your meeting (Adversity). You then think, "I'm a really
lousy boss" (Belief). You then perform poorly during your meeting, because your self confidence has plummeted (Consequences). The key point occurs between adversity and belief.
(b) Tank Container
Ans. A tank container is a large stainless steel pressure vessel held within a 20-foot ISO frame that is used for the
transportation and storage of bulk liquids. The 20-foot ISO frame ensures that tank containers can be transported using
most modern inter-modal transportation options, including container ships, trucks and rail. The tank container provides a
safe, reliable and cost-effective way to transport bulk liquids to most locations around the globe. The frame is made
according to ISO standards and is 19.8556 feet (6.05 meters) long, 7.874 feet (2.40 meters) wide and 7.874 feet (2.40
meters) or 8.374 feet (2.55 meters) high. The contents of the tank range from 27,000 to 40,000 liters (5,900 to 8,800 imp
gal; 7,100 to 10,600 U.S. gal). There are both smaller and larger tank containers, which usually have a size different from
the ISO standard sizes. The trade organization TCO estimates that at the end of 2012 the global fleet of tank containers is

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between 340,000 and 380,000. Most of these tank containers are owned by operators and leasing companies. There are
hundreds of tank container operators worldwide, that can vary on the service they offer.
(c) Voyage Charter
Ans. Chartering is an activity within the shipping industry. In some cases a charterer may own cargo and employ
ashipbroker to find a ship to deliver the cargo for a certain price, called freight rate. Freight rates may be on a per-ton basis
over a certain route (e.g. for iron ore between Brazil and China), in Worldscale points (in case of oil tankers) or alternatively may be expressed in terms of a total sum - normally in U.S. dollars per day for the agreed duration of the charter.
A charterer may also be a party without a cargo who takes a vessel on charter for a specified period from the owner
and then trades the ship to carry cargoes at a profit above the hire rate, or even makes a profit in a rising market by reletting the ship out to other charterers.
The voyage charter, in which a ship is chartered for a one-way voyage between specified ports, with a specified
cargo at a negotiated rate of freight, is most common. The charterer agrees to provide the cargo for loading within an
agreed range of dates. Under voyage charters, the charterer pays for the use of the ship's cargo space for one, or sometimes more than one, voyage. In these cases the owners earnings are usually based on the quantity of cargo loaded, or as
a lump sum irrespective of the quantity of cargo loaded.
(d) International Chamber of Commerce
Ans. Founded in 1925, Indian Chamber of Commerce (ICC) is the leading and only National Chamber of Commerce
operating from Kolkata, and one of the most pro-active and forward-looking Chambers in the country today. Its membership spans some of the most prominent and major industrial groups in India. ICC is the founder member of FICCI, the
apex body of business and industry in India. ICC's forte is its ability to anticipate the needs of the future, respond to
challenges, and prepare the stakeholders in the economy to benefit from these changes and opportunities. Set up by a
group of pioneering industrialists led by Mr G D Birla, the Indian Chamber of Commerce was closely associated with the
Indian Freedom Movement, as the first organised voice of indigenous Indian Industry. Several of the distinguished industry leaders in India, such as Mr B M Birla, Sir Ardeshir Dalal, Sir Badridas Goenka, Mr S P Jain, Lala Karam Chand
Thapar, Mr. Russi Mody, Mr Ashok Jain, Mr.Sanjiv Goenka, have led the ICC as its President.
Q. 4. Distinguish between the following:
(a) Domestic logistics and International Logistics
Ans. The logistics of moving people may be handled in two ways. Individuals can be given instructions to meet at a
certain point, nearby or far away. If larger groups of people are to be moved, a firm may assume responsibility and charter a
bus or airplane and arrange for lodging. When the Trans-Alaska Pipeline was built during the 1970s, it was necessary to
build housing for the construction workers and to continually supply them with food and other goods. On an international
scale, some nations often supply the work force used in other nations. The workers are recruited in their home country and
moved to where they are needed. International logistics involves movements across borders, and these movements are
considered more complex for several reasons. First, there are delays at the border. Goods must be inspected, and often import
duties, or charges, are assessed. Many documents are required for international shipments, and often the logistic efforts
involved in assembling the documents are more challenging than those in moving the product. Usually all documents must
be present at the point where the goods are passing through the importing nation's customs and inspection posts. Many
international movements go aboard ship, and the process of moving through ports and being at sea is more time-consuming.
(b) Carriage of goods by land & Carriage of goods by Rail
Ans. The provision reference to which is made in Article 82(b) with the words "to the extent that such convention
according to its provisions applies to the carriage of goods that remain loaded on a road cargo vehicle carried on board a
ship" is that in article 2(1) of the CMR9 and, therefore, the scope of article 82 is limited to the situation envisaged therein.
In fact the CMR limit is equal to the Rotterdam Rules limit per package if the package weighs 105.04 kilograms and is
lower if the weight is less than 105,04 kilograms: the limit for a package weighing 50 kilograms is 416.50 SDRs under
CMR and is 875 SDRs under the Rotterdam Rules.
Article 82(c) provides that the provisions of a convention governing carriage by rail shall prevail over those of the
Rotterdam Rules to the extent that such convention according to its provisions applies to carriage of goods by sea as a
supplement to the carriage by rail. The word supplement, that is used in COTIF-CIM, conveys the idea of something
that is complementary to something else and could not exist independently: for example, in a contract of carriage by rail
from Paris to London the carriage of the railroad cargo vehicle on a ship across the Channel is a supplement to the
carriage by rail but in a door-to-door contract from Singapore to Zurich via Genoa the carriage by sea from Singapore to
Genoa can hardly be qualified as a supplement to the carriage by rail from Genoa to Zurich.

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(c) Export-Import Traffic and Freight Traffic

Ans. The performance of the ports plays a major role in the promotion of international trade. Around 90% of the
international cargo is transported through ships only.
Freight traffic is calculated in tons according to the weight of goods actually carried including the total weight of
goods, all packaging and tare weight of the containers, swap-body and pallets containing goods. Starting with 1997 the
transport of goods by road does not include packaging and the transportation of building waste and garbage.
Information on cargo loaded and unloaded at ports includes data on sea vessels owned by Latvia and foreign countries. Cargo transport by sea refers to the volume of cargo loaded and unloaded at ports.
Carriage of exported goods: goods carried between a place of loading located in Latvia and a place of unloading in
another country. Wagons loaded on a railway network and carried by ferry to a foreign network are also included. Goods
in transit, however, are not included.
Carriage of imported goods: goods carried between a place of loading located in a foreign country and a place of
unloading in Latvia. Wagons loaded on a foreign railway network and carried by ferry to the reporting network are
included. Goods in transit, however, are not included.
(d) Advalorem Rates Vs. Arbitrary Rates
Ans. Where value declared on any piece or package in excess of the bill of lading limit of value $500.00, the Ad
Valorem rate, specifically provided against the item, shall be three and three quarters per cent (3 3/4%) of the value
declared in excess of the said bill of lading limit of value and is in addition to the base rate.
Methods and apparatus are provided for achieving an arbitrary average data rate for a variable rate coder. One method
includes selecting a set (e.g., a pair) of initial composite rates surrounding the arbitrary average data rate. A reallocation
fraction is then calculated based on the initial composite rates. The reallocation fraction is used to reassign a number of
frames from one component rate of an initial composite rate to another in order to achieve the arbitrary average data rate.
Such a method may be configured such that selecting an initial composite rate on one side of (e.g., less than) the arbitrary
average data rate implicitly selects the initial composite rate on the other side of the arbitrary average data rate.
Q. 5. Briefly comment on the following:
(54)
(a) Cross subsidization is the characteristics feature of the liner freight.
Ans. Cross subsidization is the characteristic feature of the liner freight tariff, according to which losses incurred in the
carriage of a group of items are mitigated through profits on the traffic as a whole. This means that liner rates are administered rates in which the totality of revenue is of paramount importance. The recent reforms in India have been equated to the
reduction of cross-subsidization in electricity tariffs. Examining the usefulness of cross subsidies in electricity tariffs in
India, we have argued that they are prone to considerable inefficiencies and should be discontinued. We have also formally
examined the viability of above-cost tariffs in the industrial sector to allow subsidized domestic and agricultural consumption. Finally, we have used data from a distribution company in the state of Uttar Pradesh, India to estimate industrial demand
for electricity and have found that the policy of cross-subsidy may have indeed gone overboard in India.
(b) Bill of Lading is a document of title to goods.
Ans. The bill of lading is a typical document of title. The bill of lading does not have the essential characteristic of a
negotiable document: the transferee of the bill cannot acquire a better title than that of a predecessor. If a bill of lading is
stolen or endorsed without the shipper's authority, a subsequent bona fide transferee cannot acquire the rights to the goods
represented by the bill. The rule that a bona fide holder of a lost or stolen bill of exchange endorsed in blank or payable to
bearer is not bound to look beyond the instrument has no application to the case of a lost or stolen bill of lading. The bill
of lading is invested with particular attributes of great practical importance commercially. This enables it to become one
of the key instruments in international trade. The bill of lading is often referred to as a negotiable document of title, and
there is some confusion as to whether the bill of lading is really a negotiable or is merely a transferable document. This is
especially the case in English law. According to English law, bills of lading are not considered to be negotiable documents
in their full legal sense, even though they possess some of the legal characteristics of negotiable documents, such as
transferability by endorsement In fact, what is meant is that they are transferable. A finder or thief can give no title to bills
of lading even in the case of a bill endorsed in blank. English law is based on the concept that the bill of lading represents
the goods and therefore its transfer should not have greater effect than the transfer of what it represents.
(c) Application for registration is made by the ship owner.
Ans. Ship registration is the process by which a ship is documented and given nationality of the country that the ship
has been documented to. Ship registration is similar to a person receiving a passport. A ship is bound to the law of its flag
state. It is usual to say that the ship sails under the flag of the country of registration.

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The nationality allows a ship to travel internationally as it is proof of ownership of the vessel. International law
requires that every merchant ship be registered in a country, called its flag state. A ships flag state exercises regulatory
control over the vessel and is required to inspect it regularly, certify the ships equipment and crew, and issue safety and
pollution prevention documents. The organization which actually registers the ship is known as its registry.
Registries may be governmental or private agencies. In some cases, such as the United States Alternative Compliance
Program, the registry can assign a third party to administer inspections. A registry that is open only to ships of its own
nation is known as a traditional or national registry. Registries that are open to foreign-owned ships are known as open
registries, and some of these are classified as flags of convenience.
(d) Controlling inventories are vital in the logistics activity mix.
Ans. Logistics is a collection of functional activities which are repeated many times throughout the channel through
which raw materials are converted into finished products and consumer value is added. Because raw material sources,
plants, and selling points are not typically located at the same places and the channel represents a sequence of manufacturing steps, logistics activities recur many times before a product arrives in the marketplace. Even then, logistics activities are repeated once again as used products are recycled upstream in the logistics channel. A single firm generally is not
able to control its entire product flow channel from raw material source to points of the final consumption, although this
is an emerging opportunity. The physical supply channel refers to the time and space gap between a firm's immediate
material sources and its processing points. Similarly, the physical distribution channel refers to the time and space gap
between the firms processing points and its customers. Due to the similarities in the activities between the two channels,
physical supply and physical distribution comprise those activities that are integrated into business logistics. Business
logistics management is now popularly referred to as supply chain management. Others have used terms such as value
nets, value stream, and lean logistics to describe a similar scope and purpose. Inventories are also essential to logistics
management because it is usually not possible or practical to provide instant production or ensure delivery times to
customers.

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