Commodities & Finance

5 Ways to quiet yourself when life is tough:

Abdullah Razouk — Fri, 21 Jul 2023 09:13:44 +0000

5 Ways to quiet yourself when life is tough:

1. Walk:

•Walking helps clear your mind. It offers you a different perspective.

2. Indulge:

Take a day off to spend a whole day doing exactly what you want.
Eat what you want, watch series do anything that makes you feel better.

3. Be Generous:

Give something to a total stranger.
Acts of giving make us feel warm and fuzzy inside.

4. Educate yourself:

Research what it is you are experiencing.
Arm yourself with knowledge and the resources to tackle the problems head on.

5. Remind yourself of the value you have to offer:

We are often so good at something, that it becomes second nature.
Understand that it’s something other people can’t easily do.

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The Risk of Sugar Shortage in the Second Half of 2023

Abdullah Razouk — Tue, 23 May 2023 18:33:12 +0000

The Risk of Sugar Shortage in the Second Half of 2023: A Global Analysis

The sugar industry is currently facing a challenging scenario in the second half of 2023, with the looming risk of a worldwide sugar shortage. Several factors have contributed to this worrisome situation, including the sugar shortage crisis in Bangladesh and export restrictions in India, along with other issues in major sugar exporting countries.

The sugar shortage crisis in Bangladesh is a significant contributing factor. The country has experienced a drastic decline in domestic sugar production due to adverse weather conditions such as floods and prolonged droughts. These environmental challenges have led to a substantial decrease in sugarcane harvests, directly impacting the availability of sugar for domestic consumption. Although efforts have been made to increase imports, the tight global supply has posed a significant challenge for Bangladesh in acquiring sufficient sugar.

Moreover, India, being one of the world’s leading producers and exporters of sugar, is facing export restrictions that further exacerbate the global shortage. India has traditionally played a crucial role in supplying sugar to the international market. However, recent government measures have been implemented to ensure an adequate sugar supply in the domestic market. Export restrictions and limited stocks have resulted in a significant reduction in Indian sugar exports, thereby affecting the global sugar supply.

As the sugar shortage crisis unfolds, it is important for consumers, businesses, and policymakers to be aware of the potential consequences and take necessary measures to mitigate the impact. Increased collaboration among sugar-producing nations, exploration of alternative sources, and efficient distribution and allocation strategies are some of the potential solutions that could help alleviate the global sugar shortage.

At the same time, consumers can play a role by being mindful of their sugar consumption and exploring healthier alternatives. Businesses should consider diversifying their sweetener options and exploring sustainable practices in their supply chains. Policymakers can support the industry by implementing measures to stabilize sugar production, ensuring fair trade practices, and promoting research and development in alternative sweeteners.

In conclusion, the risk of a sugar shortage in the second half of 2023 is a global concern due to various factors such as the sugar shortage crisis in Bangladesh and export restrictions in India. Recognizing the challenges and working towards collaborative solutions can help mitigate the impact of this potential crisis on both the sugar industry and consumers worldwide.

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Demystifying UCP 600: an insider’s look at rules underpinning the letter of credit

Abdullah Razouk — Wed, 03 May 2023 20:18:23 +0000

Demystifying UCP 600: an insider’s look at rules underpinning the letter of credit

The letter of credit may be one of the most important types of documents in the world underpinning vast amounts of the internationally traded goods that we enjoy today.

Despite its ubiquity, however, the rules and best practices for using this critical document can take time to grasp, even for some that are well-engrained in the international trade sphere.

The letter of credit from 10,000 feet

At a high level, a letter of credit is a financial instrument that enables trade and trade finance to happen by providing assurance to both the importer and exporter in an international transaction.

It is a letter from a bank to the beneficiary that guarantees payment to the exporter if the exporter can provide the documents specified in the letter of credit.

This helps mitigate the risk of non-payment for the exporter and provides assurance to the importer that they will receive the goods they paid for and the necessary documents for customs clearance.

A letter of credit also helps ensure that the imported goods comply with regulatory requirements and international trade agreements.

Taneja said, “The simplest definition I learned was it is just a letter addressed to the beneficiary by a bank. ‘Dear sir, if you ship the following cargo to my client and present the following documents to me, I hereby undertake to pay you provided the documents are in accordance with what I am asking for.’”

Overall, a letter of credit helps facilitate international trade and mitigate the risks involved in cross-border transactions.

The rules governing letters of credit

The Uniform Customs and Practice for Documentary Credit rules are a set of international rules created by the International Chamber of Commerce (ICC) to provide clear and standardised rules for using letters of credit issued by banks worldwide.

These rules were first developed in response to the need for a clear and consistent framework to minimise misunderstandings and disputes between parties involved in international trade, particularly due to large geographic distances as well as language and cultural differences.

The various renditions of the UCP rules have been given a statutory basis by certain countries and can be subject to local laws if they conflict with the provisions therein.

The rules define the roles and responsibilities of the parties involved in a letter of credit transaction, including the importer (applicant), the exporter (beneficiary), and the banks.

UCP 600

UCP 600 is the latest revision of the UCP rules, and it was developed to address issues with the previous version, UCP 500.

Taneja said, “To understand UCP 600 I always suggest you know UCP 500. But to know UCP 500, you must know UCP 400, and so forth. Each rendition is an improvement on the disadvantages of the previous.”

The main disadvantage of UCP 500 was the use of imprecise interpretative terms and phrases, which led to disputes.

For example, UCP 500 stated that a bank should examine documents presented under a letter of credit with reasonable care and within a reasonable time.

However, it did not provide clear definitions for these terms leading to inconsistent interpretations and disputes over the examination period.

To address these issues, UCP 600 removed the term “reasonable”, adding a maximum period of five banking days for banks to examine the documents.

The UCP 600 rules benefit all parties involved in international trade transactions, including banks, negotiating banks, importers, and exporters.

The rules provide a clear framework for processing and examining documents, reducing the risk of disputes and delays.

By creating a more standardised process, UCP 600 enables banks to conduct their business more efficiently and effectively, benefiting importers and exporters by reducing transaction costs and increasing trade.

Is there a need for a UCP 700?

There have been criticisms of certain provisions of UCP 600, and some experts have been discussing the need for a revised set of rules for a long time, with some hinting towards the creation of UCP 700 rules.

However, the Executive Committee of the ICC Banking Commission has reviewed this and concluded that there was no justification for revision, Besides, it is a very expensive exercise to revise UCP 600, involving not just changing the publication but also efforts to assist with implementation, training, and system alignment.

Furthermore, there are some practical limitations involved with fixing some of the discrepancies, such as late shipment, late presentation and LC expired, that exist in the current regime will remain even if UCP rules are revised.

Taneja said, “You can’t do anything about a discrepancy like late shipment or late presentation of documents, for example. A significant number of documents are rejected globally based on these particular discrepancies. Even if you revise UCP, you can’t fix that.”

Despite criticisms, the ICC Banking Commission’s Executive Committee announced in 2017 that there is no need to revise UCP 600. Banks have happily accepted it, making it unlikely that there will be UCP 700 rules anytime soon.

Practical tips for using UCP 600

Taneja provides some general and practical tips for those in the trade finance community using the UCP 600 rules to conduct their international trade and trade finance practices.

For exporters and beneficiaries:

Understand the definition of “complying presentation” in UCP 600.
Ensure compliance with the terms and conditions of the letter of credit.
Understand International Standard Banking Practice (ISBP) 745, which complements and accompanies UCP 600 in articulating how the rules are to be applied.
Review the conditions of the LC thoroughly and seek amendments if necessary before proceeding with the shipment.
Create checklists to ensure compliance with UCP 600 and the LC terms and conditions.

For issuing banks:

Make LCs simple and avoid giving excessive details to prevent problems for exporters, importers, and the bank itself.
Consider the interest of all parties involved and avoid creating complexities that may hinder successful transactions.

For advising and confirming banks:

Conduct some basic checks to ensure compliance with sanctions laws and regulatory expectations including dual usage of goods, and price checks to avoid instances of overpricing/underpricing, i.e., Trade-Based Money Laundering (TBML).
Ensure that the LC is workable when confirming it.

These simple ideas can improve understanding of and compliance with UCP 600, leading to the facilitation of trade finance transactions and smoother international trade.

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Top 10 Rules For Successful Trading

Abdullah Razouk — Tue, 02 May 2023 20:14:03 +0000

Top 10 Rules For Successful Trading

Rule 1: Always Use a Trading Plan

A trading plan is a written set of rules that specifies a trader’s entry, exit, and money management criteria for every purchase.

With today’s technology, it is easy to test a trading idea before risking real money. Known as backtesting, this practice allows you to apply your trading idea using historical data and determine if it is viable. Once a plan has been developed and backtesting shows good results, the plan can be used in real trading.

Sometimes your trading plan won’t work. Bail out of it and start over.

The key here is to stick to the plan. Taking trades outside of the trading plan, even if they turn out to be winners, is considered poor strategy.

Rule 2: Treat Trading Like a Business

To be successful, you must approach trading as a full- or part-time business, not as a hobby or a job.

If it’s approached as a hobby, there is no real commitment to learning. If it’s a job, it can be frustrating because there is no regular paycheck.

Trading is a business and incurs expenses, losses, taxes, uncertainty, stress, and risk. As a trader, you are essentially a small business owner and you must research and strategize to maximize your business’s potential.

Rule 3: Use Technology to Your Advantage

Trading is a competitive business. It’s safe to assume that the person sitting on the other side of a trade is taking full advantage of all the available technology.

Charting platforms give traders an infinite variety of ways to view and analyze the markets. Backtesting an idea using historical data prevents costly missteps. Getting market updates via smartphone allows us to monitor trades anywhere. Technology that we take for granted, like a high-speed internet connection, can greatly increase trading performance.

Using technology to your advantage, and keeping current with new products, can be fun and rewarding in trading.

Rule 4: Protect Your Trading Capital

Saving enough money to fund a trading account takes a great deal of time and effort. It can be even more difficult if you have to do it twice.

It is important to note that protecting your trading capital is not synonymous with never experiencing a losing trade. All traders have losing trades. Protecting capital entails not taking unnecessary risks and doing everything you can to preserve your trading business.

Rule 5: Become a Student of the Markets

Think of it as continuing education. Traders need to remain focused on learning more each day. It is important to remember that understanding the markets, and all of their intricacies, is an ongoing, lifelong process.

Hard research allows traders to understand the facts, like what the different economic reports mean. Focus and observation allow traders to sharpen their instincts and learn the nuances.

World politics, news events, economic trends—even the weather—all have an impact on the markets. The market environment is dynamic. The more traders understand the past and current markets, the better prepared they are to face the future.

Rule 6: Risk Only What You Can Afford to Lose

Before you start using real cash, make sure that all of the money in that trading account is truly expendable. If it’s not, the trader should keep saving until it is.

Money in a trading account should not be allocated for the kids’ college tuition or paying the mortgage. Traders must never allow themselves to think they are simply borrowing money from these other important obligations.

Losing money is traumatic enough. It is even more so if it is capital that should have never been risked in the first place.

Rule 7: Develop a Methodology Based on Facts

Taking the time to develop a sound trading methodology is worth the effort. It may be tempting to believe in the “so easy, it’s like printing money” trading scams that are prevalent on the internet. But facts, not emotions or hope, should be the inspiration behind developing a trading plan.

Traders who are not in a hurry to learn typically have an easier time sifting through all of the information available on the internet. Consider this: if you were to start a new career, more than likely you would need to study at a college or university for at least a year or two before you were qualified to even apply for a position in the new field. Learning how to trade demands at least the same amount of time and fact-driven research and study.

Rule 8: Always Use a Stop Loss

A stop loss is a predetermined amount of risk that a trader is willing to accept with each trade. The stop loss can be a dollar amount or percentage, but either way, it limits the trader’s exposure during a trade. Using a stop loss can take some of the stress out of trading since we know that we will only lose X amount on any given trade.

Not having a stop loss is bad practice, even if it leads to a winning trade. Exiting with a stop loss, and therefore having a losing trade, is still good trading if it falls within the trading plan’s rules.

The ideal is to exit all trades with a profit, but that is not realistic. Using a protective stop loss helps ensure that losses and risks are limited, and that you have preserved enough capital to trade another day.

Rule 9: Know When to Stop Trading

There are two reasons to stop trading: an ineffective trading plan, and an ineffective trader.

An ineffective trading plan shows much greater losses than were anticipated in historical testing. That happens. Markets may have changed, or volatility may have lessened. For whatever reason, the trading plan simply is not performing as expected.

Stay unemotional and businesslike. It’s time to reevaluate the trading plan and make a few changes or to start over with a new trading plan.

An unsuccessful trading plan is a problem that needs to be solved. It is not necessarily the end of the trading business.

An ineffective trader is one who makes a trading plan but is unable to follow it. External stress, poor habits, and lack of physical activity can all contribute to this problem. A trader who is not in peak condition for trading should consider taking a break. After any difficulties and challenges have been dealt with, the trader can return to business.

Rule 10: Keep Trading in Perspective

Stay focused on the big picture when trading. A losing trade should not surprise us; It’s a part of trading. A winning trade is just one step along the path to a profitable business. It is the cumulative profits that make a difference.

Once a trader accepts wins and losses as part of the business, emotions will have less of an effect on trading performance. That is not to say that we cannot be excited about a particularly fruitful trade, but we must keep in mind that a losing trade is never far off.

Setting realistic goals is an essential part of keeping trading in perspective. Your business should earn a reasonable return in a reasonable amount of time. If you expect to be a multi-millionaire by next Tuesday, you’re setting yourself up for failure.

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What is a Standby Letter of Credit (SBLC / SLOC)?

Abdullah Razouk — Mon, 01 May 2023 22:58:45 +0000

What is a Standby Letter of Credit (SBLC / SLOC)?

A 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 even if their client cannot fulfill the payment. It is a payment of last resort from the bank, and ideally, is never meant to be used.

How can a contractual SBLC be used and how does it work?

An SBLC is frequently used as a safety mechanism for the beneficiary, in an attempt to hedge out risks associated with the trade. Simplistically, it is a guarantee of payment which will be issued by a bank on the behalf of a client. It is also perceived as a “payment of last resort” due to the circumstances under which it is called upon. The SBLC prevents contracts from going unfulfilled if a business declares bankruptcy or cannot otherwise meet financial obligations.

Furthermore, the presence of an SBLC is usually seen as a sign of good faith as it provides proof of the buyer’s credit quality and the ability to make payment. In order to set this up, a short underwriting duty is performed to ensure the credit quality of the party that is looking for a letter of credit. Once this has been performed, a notification is then sent to the bank of the party who requested the Letter of Credit (typically the seller).

In the case of a default, the counter-party may have part of the finance paid back by the issuing bank under an SBLC. Standby Letter of Credits are used to promote confidence in companies because of this.

How can you apply for a Standby Letter of Credit?

There are many aspects that a bank will take into consideration when applying for a Standby Letter of Credit, however, the main part will be whether the amount that is being guaranteed can be repaid. Essentially, it is an insurance mechanism to the company that is being contracted with.

As it is insurance, there may be collateral that is needed in order to protect the bank in a default scenario – this may be with cash or assets such as property. The level of collateral required by the bank and by the size of the SBLC will largely depend on the risk involved, and the strength of the business.

Other Application steps

There are other standard due diligence questions asked, as well as information requests regarding assets of the business and even possibly the owners. Upon receipt and review of the documentation, the bank will typically provide a letter to the business owner. Once the letter has been provided, a fee is then payable by the business owner for each yeah that the Standby Letter of Credit remains outstanding.

What are the fees for Standby Letters of Credit?

It is standard for a fee to be between 1-10% of the SBLC value. In the event that the business meets the contractual obligations prior to the due date, it is possible for an SBLC to be ended with no further charges.

What is the difference between SBLCs and LC’s?

A Standby Letter of Credit is different from a Letter of Credit. An SBLC is paid when called on after conditions have not been fulfilled. However, a Letter of Credit is the guarantee of payment when certain specifications are met and documents received from the selling party.

Letters of credit promote trust in a transaction, due to the nature of international dealings, distance, knowledge of another party and legal differences.

How do SBLCs work in Cross-Border trade?

Where goods are sold to a counter-party in another country, they may have used an SBLC to ensure their seller will be paid. 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 performance SBLC makes sure that the criteria surrounding the trade such as suitability and quality of goods are met.

We sometimes see SBLCs in construction contracts as the build must fulfill many quality and time specifications. In the event that the contractor does not fulfill these specifications then there is no need to prove loss or have long protracted negotiations; the SBLC is provided to the bank and payment is then received.

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