Finance

Assessment Exemplar for Higher National Unit

DE5T 35: Financing International Trade

1st edition: September 2004

Published by the Scottish Qualifications Authority, Hanover House, 24 Douglas Street, Glasgow,
G2 7NQ, and Ironmills Road, Dalkeith, Midlothian, EH22 1LE

The information in this publication may be reproduced to support SQA qualifications. If it is reproduced, SQA should be clearly acknowledged as the source. If it is to be used for any other purpose, then written permission must be obtained from the Support Materials Development Officer at SQA. It must not be reproduced for trade or commercial purposes.

© Scottish Qualifications Authority 2004

Contents

1. Introduction

2. How to generate evidence

3. Assessment exemplar

SQA acknowledges the valuable contribution that Scotland’s colleges have made to the development of Higher National qualifications.

1. Introduction

This pack must be used in conjunction with a copy of the Unit specification, which details the standard of performance expected of the candidate. A copy of the Unit specification can be obtained from SQA.

This pack supplements the assessment guidelines and support notes of the Unit specification. It aims to provide an example of assessment that is valid, reliable and practicable. The assessment task(s) detailed in this pack correspond to the assessment guidelines outlined in the Unit specification.

Whilst the example provided is intended for guidance, it may also be used as an assessment instrument, as long as the centre ensures the integrity and confidentiality of the assessment in the first and subsequent years of use and between centres. It may be used in a variety of ways including, for example:

□ as an assessment instrument, in whole or in part
□ to exemplify the standard of performance expected of candidates achieving the Unit, ie as a benchmark
□ to help you develop your own assessment for the Unit
□ to help you develop valid and practicable assessments for other Units within the subject area of the Group Award to which it contributes
□ to give you new ideas
□ as a staff development tool

It is important that you make sure that the assessment exemplar is used in a context appropriate to the delivery of the Unit and to the Group Award of which it forms a part. Although the content of this exemplar has been prior moderated as a suitable instrument of assessment, you should note that using this assessment exemplar does not automatically guarantee successful external moderation. It is still your responsibility to make sure that all the appropriate internal quality assurance procedures are satisfactorily completed. For example, a valid, effective and approved internal moderation system must be in use at your centre.

Recommended reading

Before using this material you might find it useful to look at some of our other publications, in particular:

□ Guide to Assessment and Quality Assurance for Colleges of Further Education
□ Guidance on Special Assessment Arrangements
□ Quality Assurance Principles, Elements and Criteria

Details of these and other SQA publications are available on our website. Most publications can be downloaded free of charge from our website at www.sqa.org.uk on the ‘Publications, Sales and Downloads’ section. If you require a publication to be sent to you, please contact our Customer Contact Centre on 0845 279 1000 quoting the product code and, where a charge is applicable, have a purchase order number or credit card details available.

Details of all HN assessment exemplars published after April 2004 are listed on our website on the HN subject specific pages. Your centre’s SQA or HN Co-ordinator will have access to these HN assessment exemplars on SQA’s secure website. Please approach them for copies. However, if you require a paper copy you can obtain one, price £20.00, from SQA’s Customer Contact Centre, Scottish Qualifications Authority, 24 Douglas Street, Glasgow, G2 7NQ (telephone: 0845 279 1000 or fax: 0141 242 2123).

Core Skills

The Unit specification will detail the Core Skills covered within the Unit.

Where Core Skills have been embedded in a Unit specification and an Assessor wishes to use an alternative method of assessment, she/he must ensure that the assessment generates the Evidence Requirements specified in the Unit specification. It is recommended that the centre seek prior moderation for the alternative method to ensure that the Core Skill is still covered.

2. How to generate evidence

Introduction

The Scottish Qualifications Authority’s system of assessment measures the evidence of a candidate’s attainment of knowledge, understanding and skills against defined criteria. The assessment process must allow for evidence of each candidate’s performance to be generated and collected. This evidence must then be judged against the standards set out in the Unit specification. To achieve the Unit the candidate must successfully meet the standards and there must be evidence to prove this.

The Unit specification defines the criteria you need to use to judge whether or not the candidate has met the standards. All Units have the following:

Outcomes

These tell you what the candidate actually has to do.

Knowledge and/or skills

This section details the essential knowledge and skills which the candidate must attain in order to achieve each Outcome, combination of Outcomes or for the Unit as a whole.

Evidence Requirements

Evidence Requirements can be written for each Outcome, for a combination of Outcomes, or for the Unit as a whole. There is no standard format for writing Evidence Requirements. Provided that they state clearly and unambiguously the type, standard and amount of evidence which candidates have to produce in order to be judged competent, the Evidence Requirements can be written in the format which will be most easily understood by users of the Unit.

Note: The national standard of achievement expected, which was previously specified as Performance Criteria, is now stated in the Evidence Requirements.

Where it is not possible to cover all the items listed under knowledge and/or skills through holistic assessment, sampling can be used as a method of gaining additional evidence. Sampling may also sometimes be an appropriate method of assessing very knowledge-based Units. This type of assessment must always be carried out in supervised conditions.

Where sampling is used, the Evidence Requirements must clearly state:

□ the standard of evidence required for each knowledge and/or skills item so that satisfactory performance can be judged whichever items are sampled on any one occasion
□ the proportion of knowledge and/or skills which can be sampled
□ whether any item(s) must be included in each assessment, ie if it is crucial to the achievement of the Outcome(s) or to an embedded Core Skill
□ the fact that a different sample should be chosen on each assessment occasion to prevent candidates being able to foresee what they will be asked
□ the conditions of assessment

Assessment guidelines

This section should give guidance on how best to conduct the assessment to generate the evidence required, eg recommending the use of a particular assessment instrument. It should include guidance on how to integrate the assessment of the whole Outcome or, if appropriate, how to link assessment holistically with other Outcomes in the Unit. Like Evidence Requirements, assessment guidelines can be written for each Outcome, a combination of Outcomes, or for the Unit as a whole.

It is important to realise that it is up to the Assessor to judge when and if the candidate has satisfactorily met the standards. This decision should be based on the quality and correct quantity of evidence collected, set against the standards in the Unit.

The assessment instrument in this pack should not create any unnecessary barriers to achievement for open/distance learning delivery and the additional support needs of individual candidates should be taken into account. You may need to adapt it so that you can assess candidates with additional support needs or candidates who are undertaking the Unit on an open/distance learning basis. However, whilst taking into account the needs of the candidate concerned, the methods of assessment you choose must still be valid, reliable and practicable. If you have any questions or problems, or if you are in any doubt as to whether or not the alternative assessment you have chosen is still valid, please contact the Customer Contact Centre at the Scottish Qualifications Authority on telephone: 0845 279 1000.

3. Assessment exemplar

Assessment tasks

The table below summarises how each assessment exemplar task relates to coverage of the Outcomes detailed in the Unit specification. It also indicates the evidence that should be retained for external moderation.

|Outcome |Suggested task |Suggested evidence to be retained |
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|1,2,3,4 |Candidates will answer five questions |ALL |
| |based on a case study that will be given | |
| |to them 7-10 days prior to the date of | |
| |the assessment. | |
| |The questions will sample knowledge and | |
| |skills from each of the Outcomes. | |

Conditions of assessment

This assessment will take the form of restricted responses to five questions based on a case study. The case study should be provided to candidates 7-10 days prior to the assessment date.

The questions will be unseen. Candidates will be permitted to bring their own handwritten or typewritten notes to the assessment.

| | |
|Assessment task |1 |

| | |
|Outcome(s) covered |1,2,3,4 |

| |1 c, d |
|Knowledge and Skills Covered |2 b |
| |3 d |
| |4 c |

Assessment task instructions

Course Title HND Financial Services (Year 2)

Unit Title Financing International Trade

Unit Number DE5T 35

SAMPLE INSTRUMENT OF ASSESSMENT

CASE STUDY

This Case Study should be provided to candidates 7-10 days prior to the assessment date. A copy of the Case Study should be provided to each candidate on the date of the assessment, along with the questions.

All questions must be answered.

Today is 31st May. You are the manager of the International Business branch of the Bell Bank plc.

The manager of your East End branch has put you in touch with Alan Dickson who is Managing Director of Theatrical Costumes Ltd, a business that has been very successful in providing costumes to UK film, television and theatre business for over 20 years. The company employs over 650 people, from costume designers and dressmakers, to administration and sales personnel.

Recently, the business has received a number of requests from the United States to supply costumes for their entertainment markets. Although the United States has a number of companies already involved in this type of business there is a greater demand than the level of supply can meet.

Alan is considering accepting a number of these contracts but the company has never before been involved in any form of exporting. In fact, the company has never even imported before, having always bought its materials from other UK companies.

Alan is concerned that the company may be faced with difficulties from exporting that it lacks the knowledge and skills to deal with.

One of the potential contracts that the business is considering is a sale of costumes to XYZ Television totalling $110,000. If the contract is agreed, the US company will take delivery of the costumes on 1 July and will pay Theatrical Costumes on 1 September. Alan is naturally concerned about the effect that exchange rates might have on the payment when it finally arrives. He mentions that his bank manager at the East End branch has told him that you should be able to offer one or two solutions to this potential problem.

He also mentions that, given his company’s lack of experience in exporting, he is unsure about how to best arrange for payment of costs, such as freight and insurance. According to his solicitor, at a recent meeting he had with him, there is a system called ‘inkyterms’ (at least that’s what he thinks he said!) that can help with the process.

Alan is a cautious individual and he believes that his careful approach to business matters has been the reason for his success. He mentions that he would like to protect the exporting transactions using some form of insurance, if that is possible.

Finally he suggests that if the business is a success in exporting to the US then it might be an idea to move some of the production there. However, he wonders whether there might be a way of doing that by allowing a local US business to carry out work on behalf of Theatrical Costumes.

You have asked Mr Dickson to call back tomorrow (1st June) to discuss the points he has raised in more detail.

QUESTIONS

All questions must be attempted.

1. You advise Mr Dickson that you can arrange to cover the transaction by means of a forward exchange contract, ensuring that the rate of exchange the company receives will be guaranteed.

Using the under noted currency rates, calculate the amount that the company will receive under the contract, assuming that the contract is arranged on 1 July.

2. Explain to Mr Dickson:

a. What a forward exchange contract is
b. How a forward exchange contract differs from a forward option contract.

3. You mention to Mr Dickson that Incoterms are used to simplify trade terms between importers and exporters and that these terms indicate what arrangements have been made for the costs incurred in transport.

He asks for some examples. Explain to Mr Dickson what is meant by:

a. FOB
b. CIF
c. DAF

4. You mention to Mr Dickson that he may be able to arrange protection through the services offered by the Exports Credits Guarantee Department (ECGD), a government agency that helps UK exporters.

Explain the main services provided to exporters by this department.

5. You suggest to Mr Dickson that he may wish to consider licensing the rights for an overseas company to use his company name, rather than setting up business in the US.

Explain the process of international licensing and how your bank can assist in setting up such an arrangement.

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|Assessment task |1 |

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|Outcome(s) covered |1,2,3 and 4 |

Suggested solution and making an assessment decision

Suggested Solutions to Sample Assessment

1. If the contract is arranged on 1 July then the spot rate used will be the lower (HIGHER) of the two quoted (the buying rate).

The relevant spot will be 1.7955. (1.7960)

The premium used will be the two months, since delivery is fixed for 1 September. This is a premium of 0.65 cents. This is deducted from the spot rate.

The rate used will therefore be 1.7955 (1.7960)
- 0.0065 (0.0050)
1.7890 (1.7910)

The delivery value of the currency will therefore be $110,000/ 1.789 (1.7910) = £61,486.86 (61418.20)

2. a. A forward exchange contract is a binding contract between the bank and the
individual for the purchase or sale of a stated quantity of a specified foreign currency, at a rate of exchange fixed at the time of making the contract.

Delivery of the currencies will be on a specified future date. These are inflexible, due to the nature of the fixed date.

Forward exchange contracts are attractive to exporters and importers who know the exact date on which the transaction is to be completed.

By entering into the contract, the exporter or importer will avoid any loss through an adverse move in the exchange rate for the currency they need to buy or sell.

If the exchange rate moves in the other direction (i.e. becomes more favourable for them) they cannot decide to use the more favourable spot rate on the day the currency is delivered to the bank. The rate of exchange is fixed on the day the contract is agreed. So the trader is protecting their downside loss, but is also removing any chance of a gain.

Both parties must deliver on the specified date.

b. A forward option contract is a variation of a forward exchange contract. Like a fixed forward contract it is binding and must be completed. However, in this case the customer (not the bank) has an option as to the actual date of completion.

For example, on 1 January an exporter knows they will receive US $ from a previous transaction sometime during the period 1-31 March. By entering into an option forward contract he can lock in the £/$ forward rate and can complete on any date within the option period.

In fixing the rate of a forward option contract, the bank has to take into account that the customer might settle the contract on the first day of the option period or on the last day.
The forward rate for the beginning of the period and the end of the period are compared and the bank will use the rate that is most favourable to them (refer back to the exchange rate quote and the spread – the bank will always use the rate that benefits them).

N.B. It is essential that the candidate does not confuse forward exchange and forward option contracts with futures and options.

3. a. FOB stands for Free on Board. It is category Group F Main Carriage Unpaid.
The seller delivers the goods, cleared for export, when they pass the ship's rail at the named port of shipment. The buyer pays all costs after goods have been delivered.

b. CIF stands for Cost Insurance and Freight and is category Group C Main Carriage Paid. The seller delivers the goods when they pass the ship's rail in the port of shipment and must pay the costs and freight necessary to bring the goods to the named port of destination. The buyer bears all additional costs and risks after the goods have been delivered. The seller must also procure insurance against the buyer's risk of loss of, or damage to, the goods during carriage. The seller pays all costs up to final destination.

c. DAF stands for Delivered at Frontier and is category Group D Arrival. The seller must place the goods at the disposal of the buyer on the arriving means of transport not unloaded, cleared for export but not cleared for import, at the named point and place at the frontier. The seller pays all costs to point of delivery at frontier.

4. ECGD, the Export Credits Guarantee Department, is the UK's official export credit agency.

It works closely with exporters, project sponsors, banks and buyers to help UK exporters of capital equipment and project-related goods and services to win business and invest overseas.

It has two functions:

• To provide exporters with facilities for insuring their consignments against default on the part of foreign importers, and most other risks too
• To provide medium and long-term financing for capital projects.

The ECGD complements the services provided by private sector insurance. Private sector insurance tends only to be available for contracts with buyers in the developed world and for orders that involve relatively short delivery/credit periods and where contract values are reasonably small.

The ECGD provides insurance both for UK exporters of goods and services as well as for investors in overseas projects.

The largest part of the ECGD’s work involves underwriting finance packages to support the sale of capital goods, such as aircraft, machinery and services, and to help UK companies take part in large overseas projects covering hospitals, airports and power stations. In this regard it is more involved with project finance.

From the insurance division, the ECGD can provide insurance against the risk of not getting paid by the overseas buyer due to buyer default/insolvency, war or lack of foreign exchange. It also guarantees loans provided by banks to overseas borrowers who want to buy from the UK. Here the exporter gets cash on delivery that allows the buyer some time to pay. The ECGD will also guarantee finance packages in a number of currencies, to suit the buyer.

In order to put the cover in place the ECGD needs to know the names of the buyers the exporter is dealing with. They will set credit limits for each of them. The exporter will negotiate with the ECGD the extent of cover they require and this will determine the premium they shall pay. Some exporters will simply cover all their exports, while others might restrict cover to particular markets, or selected parts of their sales.

There are two types of premium payable by the exporter:

• A flat rate premium assessed at the beginning of each policy year based on the expected extent of the risks to be covered
• A monthly premium based on the amount of the actual exports during the month.

5. International licensing is any arrangement whereby an exporter who owns exclusive rights to a brand name, product, process or service, provides permission for the use of these exclusive rights to an overseas individual or company.

The exporter, in these circumstances, becomes known as the master licensor, and grants the overseas individual or company a master license to use the use the product is their territory, subject to the payment of a licence fee or royalty.

International banks can provide a number of facilities to assist UK exporters in licensing and franchising. They can:

• Obtain market research that examines the suitability of the product or service for the chosen licensing market
• Carry out financial projections to examine setting up costs and revenue sources
• Examine the legal implications of the licence in respect of payment of fees and the use of the product or service
• Provide advice on the differences between the home market and overseas market

Assessment checklists

|Unit assessment: candidate’s assessment record |
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|DE5T 35 ( Financing International Trade |
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|Class | |Group | |
|Candidate Name | |Candidate ID | |
|Outcome 1 |
|Evidence Requirements |Record of Performance |
| |Satisfactory/ |Comments |
| |Unsatisfactory | |
|Assessment tasks - Case Study - Questions | | |
|Calculates the forward exchange contract by selecting the correct spot rate and| | |
|premium | | |
|Calculates the correct forward exchange rate by deducting the premium from the | | |
|spot rate | | |
|Calculates the correct value of the contract | | |
|Explains the operation and use of a forward exchange contract | | |
|Explains the operation and use of a forward option contract | | |
|(Enter S or U in the box to indicate whether performance in the relevant aspect of the assessment is satisfactory or unsatisfactory. |
|The comment column can be used to highlight any re-assessment that may be needed.) |
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|Overall comments: |
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|Assessor’s signature: |Date: |

Assessment checklists

|Unit assessment: candidate’s assessment record |
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|DE5T 35 ( Financing International Trade |
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|Class | |Group | |
|Candidate Name | |Candidate ID | |
|Outcome 2 |
|Evidence Requirements |Record of Performance |
| |Satisfactory/ |Comments |
| |Unsatisfactory | |
|Assessment tasks - Case Study - Questions | | |
|Explains satisfactorily the features of 2 of the 3 inciters | | |
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|(Enter S or U in the box to indicate whether performance in the relevant aspect of the assessment is satisfactory or unsatisfactory. |
|The comment column can be used to highlight any re-assessment that may be needed.) |
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|Overall comments: |
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|Assessor’s signature: |Date: |

Assessment checklists

|Unit assessment: candidate’s assessment record |
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|DE5T 35 ( Financing International Trade |
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|Class | |Group | |
|Candidate Name | |Candidate ID | |
|Outcome 3 |
|Evidence Requirements |Record of Performance |
| |Satisfactory/ |Comments |
| |Unsatisfactory | |
|Assessment tasks - Case Study - Questions | | |
|Identifies the main services provided by ECGD to exporters | | |
|Explains the insurance provision offered by ECGD to a satisfactory standard | | |
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|(Enter S or U in the box to indicate whether performance in the relevant aspect of the assessment is satisfactory or unsatisfactory. |
|The comment column can be used to highlight any re-assessment that may be needed.) |
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|Overall comments: |
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Assessment checklists

|Unit assessment: candidate’s assessment record |
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|DE5T 35 ( Financing International Trade |
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|Class | |Group | |
|Candidate Name | |Candidate ID | |
|Outcome 4 |
|Evidence Requirements |Record of Performance |
| |Satisfactory/ |Comments |
| |Unsatisfactory | |
|Assessment tasks - Case Study - Questions | | |
|Explains the main features of international licensing | | |
|Explains at least two ways in which a bank can assist with international | | |
|licensing | | |
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|(Enter S or U in the box to indicate whether performance in the relevant aspect of the assessment is satisfactory or unsatisfactory. |
|The comment column can be used to highlight any re-assessment that may be needed.) |
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|Overall comments: |
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|Assessor’s signature: |Date: |

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|Unit assessment: class checklist |
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|DE5T 35( Financing International Trade |
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|Class | |Group | |
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| |Candidate |Candidate |Candidate |Outcomes |Overall Achievement* |
| |Surname |Forename |ID |1, 2 and 3 | |
|1 | | | | |P F |
|2 | | | | |P F |
|3 | | | | |P F |
|4 | | | | |P F |
|5 | | | | |P F |
|6 | | | | |P F |
|7 | | | | |P F |
|8 | | | | |P F |
|9 | | | | |P F |
|10 | | | | |P F |
|11 | | | | |P F |
|12 | | | | |P F |
|13 | | | | |P F |
|14 | | | | |P F |
|15 | | | | |P F |
|16 | | | | |P F |
|17 | | | | |P F |
|18 | | | | |P F |
|19 | | | | |P F |
|20 | | | | |P F |
|21 | | | | |P F |
|22 | | | | |P F |
|23 | | | | |P F |
|24 | | | | |P F |
|25 | | | | |P F |

* Mark as appropriate

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Example of Forward Rates: (£/$)

Assume a Spot Rate on 1 July of 1.7955-1.7960

1 month’s forward premium 0.62-0.44 cents
2 month’s forward premium 0.65-0.50 cents
3 mont’s forward premium 0.80-0.64 cents
4 month’s forward premium 1.00-0.73 cents

Finance 6.8 of 10 on the basis of 3548 Review.