Introduction to international trade and finance

Introduction to International Trade and Finance Objectives Completed this subject, students will be able to: • Understand the key concepts and terminologies in international trade • Understand the forces in international trade environment • Understand the roles and responsibilities of all parties involved in international trade and finance • Understand the process involved in international trade and sources of laws and convention applicable to such process • Understand and select the appropriate methods of international payment • Understand the current banking practices and forms of international trade finance • Take a Certificate of International Trade and Finance(CITF) Course overview Topic 1: Introduction Topic 2: The international trade environment Topic 3: Contracts and documents Topic 4: Methods of payment Topic 5: Trade Finance Management Course timeline No Learning topics/ Discussion/ Tests Introduction The international trade environment Contracts and documents Case Study Discussion Methods of Payment Discussion & Examination Class period 6 20 Course Assessment • • • • Class attendance: 10% 01 Case study (covering topic 1, 2, 3): 15% 01 Mid-term test: (covering topic 4): 15% Final exam: 60% Case study Select a Vietnamese company which have already involved in exporting Imagine that you are a trade consultant who needs to suggest a new country market for the company to make an entry Write a report which covering the following contents: - Introduction - Company background - Reasons for finding a new foreign market - Select a potential country market and PESTEL analysis to support your choice - Select a method of entry and explain your choice - Conclusion Writing language: English Word limit: 3000 Deadline: 23/5 Readings Required reading • Guide to International Trade and Finance – Paul, C & Peter, Mc (2014), If University Supplementary readings • The Handbook of International Trade and Finance – Anders Grath (2008) • Finance of International trade - Eric Bishop (2004) • ICC publication: Incoterms 2010, UCP 600, ISBP 745 • UN Convention on Contracts for the International Sale of Goods (CISG) Student’s Responsibilities • Attend class regularly • At home: Read and prepare answers for questions of the next class • In class: take notes and submit answer sheets on group basis • Work in groups for homework, in-class discussion and case studies • Raise your voice if you have any ideas or questions related to the lecturers Topic 1: Introduction The concept of International Trade Risks and risk mitigants in international trade Parties involved in international trade The concept of International trade Definition: International trade is the exchange of goods, services or performance and capital across international borders or territories 4.4.3 A Typical Documentary Credit Transaction Flow a b c d e f g h i j k l Documents creation and presentation Documents examination and payment Documents presentation to ask for reimbursements Documentary Credit Advised Sales Contract Documents examination and reimbursements Goods shipped Documentary Credit Application Documents examination and negotiation Sales Contract Documents examination to ask for payment Documentary Credit Issued 4.4.3 A typical Documentary Credit transaction flow Using the steps provided in the previous slide, can you complete the transaction flow ? A B C D Discussion Read page 144-145 and answer the following questions What are the considerations that should be agreed by the parties before the buyer asks its bank to issue the credit? Why does the bank mark the credit as a contingent liability? What are the options for the bank to protect it against loss? What are the information that you will expect to see on an application form for L/C? 4.4.5 Terminologies Payment terms At sight Acceptance Deferred payment Negotiation Payment terms Read page 147-148 and complete the table Sight payment Time of payment Types of commercial documents used Types of draft used The obligation of nominated bank The obligation of issuing bank Acceptance Deferred payment Negotiation 4.4.6 Types of Documentary Credit Transferable Credits Back-to-back Credits Revolving documentary credits ‘Red clause’ and ‘green clause’ credits Standby letters of credit Transferable Credits • • • • Fulfills the needs of intermediaries Definition Important points Procedure Back to back credits • • • • • • Definition Procedure Parties involved Flow of documents and payment Roles and responsibilities of each party Issuing conditions for Back to back credits 4.3 Bank Payment Obligations (BPOs) What is the urge underlying the birth of a brand-new method of payment – BPOs? 4.3 Bank Payment Obligations (BPOs) Read page 108 and answering the following questions • By which bodies was BPOs developed? • When was BPOs born? • Is there any rules governing BPOs? 4.3 Bank Payment Obligations (BPOs) Definition A BPO is an irrevocable undertaking given by one bank to another bank that payment will be made on specified date after a successful electronic matching of data according to an industry-wide set of rules 4.3 Bank Payment Obligations (BPOs) Important terms • TMA, TSU • ISO 20022 standards (page 273-274 for more) • URBPO • Obligor bank • Recipient bank 4.3 Bank Payment Obligations (BPOs) Sample Bank Payment Obligation Transaction Flow 4.3 Bank Payment Obligations (BPOs) Step : Buyer and seller agreed on BPO (bank payment obligation) as a payment term on the sales contract Buyer send its purchase order to the seller Step : Buyer provides the minimum data from the purchase order and conditions of the bank payment obligation to the obligator bank Step : Seller confirms the data from the PO and send its acceptance of the BPO conditions to the recipient bank If both buyer's and seller's data are matched on the Transaction Matching Application than the baseline is established Both buyer and seller will be receiving a matching reports from their banks BPO is irrevocable but conditional payment method (payment is subject to the electronic matching of agreed datasets) Step : Seller ships the goods as agreed on the sales contract Step :Seller presents the shipment data and invoice data to its bank, which submits it to Transaction Matching Application for matching Step : Buyer receives a match report from its bank Buyer is invited to accept any mismatches if any Step : Seller's bank inform seller about the successful dataset match BPO becomes operative and due according to the agreed payment terms Step : Seller sends the trade documents directly to the buyer Buyer will clear goods from the customs with these documents Step : On the due date, the obligor bank debits the proceeds from buyer's account 4.3 Bank Payment Obligations (BPOs) Discussion Compare and contrast BPOs and Documentary Credit? Compare and contrast BPOs and Open Account? ... Guide to International Trade and Finance – Paul, C & Peter, Mc (2014), If University Supplementary readings • The Handbook of International Trade and Finance – Anders Grath (2008) • Finance of International. .. parties involved in international trade and finance • Understand the process involved in international trade and sources of laws and convention applicable to such process • Understand and select the... Topic 1: Introduction Topic 2: The international trade environment Topic 3: Contracts and documents Topic 4: Methods of payment Topic 5: Trade Finance Management Course timeline No Learning topics/