TIẾNG ANH KINH TẾ Financing international trade slides

UNIT FINANCING INTERNATIONAL TRADE What are some of the risks involved in trading internationally? Suggested answer  Risk of not being paid (for the exporter)  Risk of not receiving goods (for the importer)  Risk of receiving goods which are different from those ordered or of lower quality or in a damaged condition  Risk of force majeure (Eg: storms, disasters etc.) What payment methods you know that are used when exporting or importing goods? Suggested answer     Open account Document credit Bills for collection Advance payment What is the role of the banks in international trade? Suggested answer  Active role: When the Banks get involved in the payment process, supporting both the exporter and the importer to complete their obligations so that the contract is carried out as agreed For example, in the documentary credit method of payment Suggested answers  Passive role: When the bank only things as requested For example, just transferring money to the account of the seller/exporter     Open account Documentary letter of credit Bills for collection Advance payment 10 Open account  Is only used for transactions between exporters and importers which have already established a trust-worthy and long-term business relation  Saving time for both exporter and importer as they deal directly with each other – not much involvement of banks 11 Revolving LC • A letter of credit calling for renewed credit to be made available when the issuing bank informs the beneficiary that the buyer has reimbursed the issuing bank for the drafts already drawn Back to back LC • Two letter of credit with identical documentary requirements, except for the difference in the price as shown by the invoice and draft Traveler LC • A letter of credit issued by a bank, addressed to all its correspondents, permitting the bearer to draw drafts up to the total amount named in the letter Standby LC • A letter of credit that can be drawn against, but only if another business transaction is not performed Bid or performance bond • A financial guarantee, given by a contracting company, which states that it has the capability to start and satisfactorily complete the project Advised LC • A letter of credit issued by a bank and forwarded to the beneficiary by a second bank in his area The second bank validates the signatures and attests to the legitimacy of the first bank Confirmed LC • A letter of credit issued by one bank to which a second bank adds its commitment to pay Documentary credit  Being used worldwide  Safer for exporter as it makes sure he will get his money for the goods sold provided that he presents the correct documents  Ensure the importer that he will get the goods bought as long as he pays for them or agreed to pay in a fixed date in the future  Greatly supportive involvement of banks in the transaction process  Taking more time than other 28 methods of payment Look at the diagrams below to explain how a letter of credit works 29 30 31 Bills for collection  Clean collection: more risky as the importer can use the documents of the title to receive the goods only by agreeing to pay in a fixed date in the future  Documentary collection: safer as the importer has to pay in return of the documents of title to receive the goods after all  More passive roles of the banks They only what is required 32 • Documents Against Payment  D/P • In this case documents are released to the importer only when the payment has been done • Documents Against Acceptance  D/A • In this case documents are released to the importer only against acceptance of a draft 33 Advance payment  Safest for the exporter if the importer has to fully pay for the good bought in advance  Still safe if the importer pays in part in advance  Time saving  Being used if there is more demand than supply for that kind of commodity 34 Conclusions about each method of payment mentioned above 39 ... account Document credit Bills for collection Advance payment What is the role of the banks in international trade? Suggested answer  Active role: When the Banks get involved in the payment process,...What are some of the risks involved in trading internationally? Suggested answer  Risk of not being paid (for the exporter)  Risk of not receiving