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Impact of letter of credit on customer satisfaction

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The study reveals the perception of consumers towards the letter of credit. Applying the suitable statistical tools it has been observed that consumers are highly satisfied with the services like letter of credit by the banks. The consumers also accepts it as one of the secured tool to carry out the trade.

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  1. International Journal of Management INTERNATIONAL (IJM), ISSN 0976 JOURNAL – 6502(Print), ISSN 0976(IJM) OF MANAGEMENT - 6510(Online), Volume 6, Issue 6, June (2015), pp. 01-06 © IAEME ISSN 0976-6502 (Print) ISSN 0976-6510 (Online) IJM Volume 6, Issue 6, June (2015), pp. 01-06 © IAEME: http://www.iaeme.com/IJM.asp ©IAEME Journal Impact Factor (2015): 7.9270 (Calculated by GISI) www.jifactor.com IMPACT OF LETTER OF CREDIT ON CUSTOMER SATISFACTION (A Study on Letter of Credit with Respect To Satisfaction of Tradesmen, Navi Mumbai) MangeshJadhav1, Alpha Lokhande2 1,2 Asst Prof. DY Patil School of Management, Belapur, Navi Mumbai ABSTRACT To overcome business of overseas opponentsit has become mandate for every individual engaged businessof trade on the global frontiers to offer lucrative mode of payment to consumers. Receiving timely and total payment is a definite objective behind trade.Choosing the relevant mode of payment by mitigating risk and delivering the goods in healthy condition is win –win situation for both the participants engaged in trade. Letter of credit is amongst the one which is most acceptable and protected tool to carry out the overseas and domestic trade. Letter of credit is promissory note delivered by the bank to the individual receiving the goods on behalf of the sender. In other words letter of credit reflects the trustworthinessof the individual making the payment hereinafter the receipt of the goods. It can also be stated that letter of credit is contrivance to win trust of the supplier. Moreover centering on the banks perspective it gets the charges from the individual for whom it stands as anassurity. The study reveals the perception of consumers towards the letter of credit. Applying the suitable statistical tools it has been observed that consumers are highly satisfied with the services like letter of credit by the banks. The consumers also accepts it as one of the secured tool to carry out the trade. Key words: Letter of Credit, Advising Bank, Issuing Bank INTRODUCTION Letter of credit is a credential providing security to the purchaser. It is a proposed covenant delivered by the consumersbank which takes the responsibility of the consumer for the payment of 1
  2. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 6, Issue 6, June (2015), pp. 01-06 © IAEME the goods received. The letter of credit is not identical to sales agreement. Where in banks of both the parties are not liable for payments if the proposed agreement turns void. The banks responsibility starts thereinafter the acceptance of proposed terms and conditions mentioned in the letter of credit by the exporter.Letter of credit is easily accessible for single businessdeal for the stipulated period of time. However it can be availed for the upcoming trade proposals.The termination and amendment cannot be carried out without the prior consent of all the entities affianced in proposed agreement of trade. LITERATURE REVIEW Harfield describes LOC as a contractual agreement between banks on behalf of its customers. It is a written commitment of the supplier of goods or services to pay certain financial amount. The terms and conditions are provided in the Letter of Credit Wiley stated LOC being a four- party undertaking. In which a farmer, agent or business correspondent ordered payment at another place or at fair to a specified person in order to settle an exchange between the sender of the “letter” and a person named in it. OBJECTIVES OF THE STUDY To study the utility of Letter of credit (LOC) at Navi Mumbai. To study theimpact of letter of credit in trading sector. To study the impact of letter of credit on customer satisfaction at Navi Mumbai. HYPOTHESIS H01: The usage of letter of credit is not high at Navi Mumbai HA1: The usage of letter of credit is high at Navi Mumbai H02: There is no impact of letter of credit in trading sector at Navi Mumbai. HA2: There is huge impact of letter of credit in trading sector at Navi Mumbai. H03: There is no impact on customer satisfaction with respect to letter of credit at Navi Mumbai. HA3: There is huge impact on customer satisfaction with respect to letter of credit at Navi Mumbai. METHODOLOGY Primary Data: The data used of Navi Mumbai, The population of the consumers availing letter of credit is 500. 10 percent of the target population ie.50 wasadministered, which was corroborate by using sample size formula. Duly filled fifty questionnaires were returned. Secondary Data: The data was collected from Indian bankers association and Merchants Association of Navi Mumbai through questionnaire and schedule. 2
  3. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 6, Issue 6, June (2015), pp. 01-06 © IAEME DATA ANALYSIS Table No: 1 Count Column N % Education Graduation 20 40.0% Post-Graduation 14 28.0% Technical Education 16 32.0% Total 50 100.0% MS Married 23 46.0% Unmarried 22 44.0% Separated 5 10.0% Total 50 100.0% Age Below 30 10 20.0% 31 – 40 14 28.0% 41 – 50 15 30.0% 51 – 60 11 22.0% Total 50 100.0% Source: Data Collected Table no: 2 Ranking on the Mean SD basis of mean Consignment 2.36 1.01 10 Open Account 4.04 0.7 2 Government Guaranteed export working capital loan 4.02 0.74 3 Letter of Credit 4.06 0.62 1 Cash-in-Advance 4.04 0.64 2 Wire Transfer 3.6 0.93 7 Export working capital Financing 3.34 0.98 9 Documentary Collections 3.54 0.93 8 Credit Card 3.64 0.85 6 Payment by Check 3.96 0.7 4 Escrow Service 3.92 0.72 5 Satisfied with Letter of credit 3.64 0.8 6 Source: Data Collected Table 3: Descriptive statistics with respect to Demographic Parameter Satisfaction Level Mean Standard Deviation Graduation 3.81 0.81 Education Post-Graduation 3.67 0.99 Technical Education 3.53 0.98 Married 3.66 0.87 MS Unmarried 3.64 0.98 Separated 3.93 0.92 Below 30 3.65 0.77 31 – 40 3.96 0.77 Age 41 – 50 3.47 1.05 51 – 60 3.64 0.98 Source: Data Collected 3
  4. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 6, Issue 6, June (2015), pp. 01-06 © IAEME Table No: 4 ANOVA Tests of Between-Subjects Effects Dependent Variable: Satisfaction Level Type III Sum of Source Squares df Mean Square F P-value Corrected Model 201.301a 95 2.119 3.409 .000 Intercept 4101.706 1 4101.706 6599.204 .000 Attribute* 66.513 11 6.047 9.728 .000 Education .762 2 .381 .613 .542 MS* 17.410 2 8.705 14.005 .000 Age* 27.285 3 9.095 14.633 .000 Attribute * Education 9.529 22 .433 .697 .844 Attribute * MS 7.586 22 .345 .555 .951 Attribute * Age 13.608 33 .412 .663 .926 Error 313.259 504 .622 Total 8640.000 600 Corrected Total 514.560 599 a. R Squared = .391 (Adjusted R Squared = .276) Interpretation Since p-value for the Attribute, MS, Age is less than that of 0.05 indicates significant difference between the mean satisfaction level with respect to Attribute, MS, Age. The observed significant difference for satisfaction level for Attribute is irrespective of Education, Marital status and Age. Table no: 5 Education MS Age Gradua Technical Below 31 – PG Married Unmarried Separated 41 – 50 51 – 60 tion Education 30 40 Mean Mean Mean Mean Mean Mean Mean Mean Mean Mean Consignment 2.70 1.93 2.31 2.30 2.55 1.80 2.90 2.57 1.80 2.36 Open Account 4.20 3.86 4.00 3.96 4.09 4.20 4.00 4.36 3.87 3.91 Government Guaranteed export 4.15 4.00 3.88 4.00 3.91 4.60 4.10 4.21 3.73 4.09 working capital loan LOC 4.20 4.00 3.94 4.09 3.91 4.60 4.10 4.21 3.93 4.00 Cash-in-Advance 4.20 3.93 3.94 4.09 3.91 4.40 4.00 4.29 3.80 4.09 Wire Transfer 3.65 3.57 3.56 3.57 3.64 3.60 3.30 4.00 3.40 3.64 Export working 3.60 3.50 2.88 3.26 3.36 3.60 3.50 3.71 3.27 2.82 capital Financing Documentary 3.60 3.64 3.37 3.43 3.50 4.20 3.20 4.00 3.40 3.45 Collections Credit Card 3.80 3.57 3.50 3.61 3.64 3.80 3.70 3.93 3.40 3.55 Payment by Check 4.00 4.14 3.75 3.96 3.91 4.20 3.80 4.21 3.80 4.00 Escrow Service 3.95 4.14 3.69 3.91 3.86 4.20 3.70 4.21 3.80 3.91 Satisfied with LOC 3.65 3.79 3.50 3.78 3.41 4.00 3.50 3.86 3.40 3.82 Source: Data Collected 4
  5. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 6, Issue 6, June (2015), pp. 01-06 © IAEME Table No: 6. Knowledge against Demographic Parameter Education MS Age Technical Graduate Post-Graduate Married Unmarried Separated Below 30 31 – 40 41 – 50 51 – 60 Education Mean Mean Mean Mean Mean Mean Mean Mean Mean Mean Consignment 2.70 1.93 2.31 2.30 2.55 1.80 2.90 2.57 1.80 2.36 Open Account 4.20 3.86 4.00 3.96 4.09 4.20 4.00 4.36 3.87 3.91 Government Guaranteed export 4.15 4.00 3.88 4.00 3.91 4.60 4.10 4.21 3.73 4.09 working capital loan Letter of Credit 4.20 4.00 3.94 4.09 3.91 4.60 4.10 4.21 3.93 4.00 Cash-in-Advance 4.20 3.93 3.94 4.09 3.91 4.40 4.00 4.29 3.80 4.09 Wire Transfer 3.65 3.57 3.56 3.57 3.64 3.60 3.30 4.00 3.40 3.64 Export working 3.60 3.50 2.88 3.26 3.36 3.60 3.50 3.71 3.27 2.82 capital Financing Documentary 3.60 3.64 3.37 3.43 3.50 4.20 3.20 4.00 3.40 3.45 Collections Credit Card 3.80 3.57 3.50 3.61 3.64 3.80 3.70 3.93 3.40 3.55 Payment by Check 4.00 4.14 3.75 3.96 3.91 4.20 3.80 4.21 3.80 4.00 Escrow Service 3.95 4.14 3.69 3.91 3.86 4.20 3.70 4.21 3.80 3.91 Satisfied with Letter 3.65 3.79 3.50 3.78 3.41 4.00 3.50 3.86 3.40 3.82 of credit Source: Data Collected Table No.7 Chi-square test result Value Education Chi-square 7.958 Df 8 p-value .438a,b MS Chi-square 10.410 Df 8 p-value .237a,b Age Chi-square 13.339 Df 12 p-value .345a,b Interpretation Since p-value for all the comparison is greater than that of 0.05 indicates no significant association between the Parameters and Knowledge. RECOMMENDATIONS The letter of credit is most widely used tool for the successful trade due the invention of banks. The consumer should be facilitated with the services with the nominal amount of charges. The consumer builds a trust on the seller as the banks being a legal entity takes the responsibility for payment. Maximum number of banks should provide such services which enhances trade globally and domestically. Consequently it will improve the financial stature of nation. 5
  6. International Journal of Management (IJM), ISSN 0976 – 6502(Print), ISSN 0976 - 6510(Online), Volume 6, Issue 6, June (2015), pp. 01-06 © IAEME CONCLUSION The customer inclination towards letter of credit is high as compared to other tools of payment used in trade finance. It is observed that the satisfaction is high among the consumers as their respective banks stands as a guarantee between the two consignee. The satisfaction level is subsequently low with the tools like Government Guaranteedexport working capital loan and Documentary Collections REFERENCES 1. B.V. Kumar, (2000) "Letter of Credit Fraud", Journal of Financial Crime, Vol. 7 Iss: 3, pp.251 – 254 2. Mead, C.A. (1922), “Documentary letters of credit”, Columbia Law Review, Vol. 22 No. 4, pp. 297‐331 3. Verkuil, P.R. (1973), “Bank solvency and guaranty letters of credit”, Stanford Law Review, Vol. 25 No. 5, pp. 716‐39. 4. Yanan Zhang, (2012) "Documentary letter of credit fraud risk management", Journal of Financial Crime, Vol. 19 Iss: 4, pp.343 – 354. 5. Dr. Sandip Ghosh Hazra, Prashant Piyush and Tapan Kumar, “Customer Loyalty in Indian Banking Sector: A Comparative Study” International Journal of Management (IJM), Volume 4, Issue 2, 2013, pp. 236 - 243, ISSN Print: 0976-6502, ISSN Online: 0976-6510. 6. Mr. T.Partha Saradhy, Dr. S.E.V.Subrahmanyam and Dr. T.Narayana Reddy, “A Study on Customer Perception towards Customer Relationship Management (CRM) Practices In Nationalised Banks” International Journal of Management (IJM), Volume 5, Issue 11, 2014, pp. 34 - 47, ISSN Print: 0976-6502, ISSN Online: 0976-6510. 7. M.Rajeswari, “A Study on Credit Risk Management In Scheduled Banks” International Journal of Management (IJM), Volume 5, Issue 12, 2014, pp. 79 - 89, ISSN Print: 0976- 6502, ISSN Online: 0976-6510. 8. Dr. V. Shanmugasundaram and S. N. Selvaraj, “Credit Defaults Cause Non-Performing Assets In Public Sector Banks In India” International Journal of Management (IJM), Volume 6, Issue 1, 2014, pp. 71 - 78, ISSN Print: 0976-6502, ISSN Online: 0976-6510. 6
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