1 / 30

FINANCING FOREIGN TRADE

CHAPTER 12. FINANCING FOREIGN TRADE. CHAPTER OVERVIEW:. I. PAYMENT TERMS II. DOCUMENTS III. FINANCING TECHNIQUES IV. GOVERNMENT SOURCES OF EXPORT FINANCING AND CREDIT INSURANCE V. COUNTERTRADE. I. PAYMENT TERMS. I. PAYMENT TERMS A. Five Principal Means: 1. Cash in advance

cedric-tanner
Télécharger la présentation

FINANCING FOREIGN TRADE

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. CHAPTER 12 FINANCING FOREIGN TRADE

  2. CHAPTER OVERVIEW: • I. PAYMENT TERMS • II. DOCUMENTS • III. FINANCING TECHNIQUES • IV. GOVERNMENT SOURCES OF EXPORT FINANCING AND CREDIT INSURANCE • V. COUNTERTRADE

  3. I. PAYMENT TERMS • I. PAYMENT TERMS • A. Five Principal Means: • 1. Cash in advance • 2. Letter of Credit • 3. Drafts • 4. Consignment • 5. Open Account

  4. PAYMENT TERMS • B. Cash in Advance • 1. Minimal risk to exporter • 2. Used where there is • a. Political unrest • b. Goods made to order • c. New unfamiliar customer

  5. PAYMENT TERMS • C. Letter of Credit (L/C) • 1. A letter addressed to seller • a. written and signed by • buyer’s bank • b. promising to honor seller’s • drafts. • c. Bank substitutes its own • commitment • d. Seller must conform to terms

  6. PAYMENT TERMS • 2. Advantages of an L/C to Exporter • a. eliminates credit risk • b. reduces default risk • c. payment certainty • d. prepayment risk protection • e. financing source

  7. PAYMENT TERMS • 3. Advantages of L/C to Importer • a. shipment assured • b. documents inspected • c. may allow better sales terms • d. relatively low-cost financing • e. easy cash recovery if discrepancies

  8. PAYMENT TERMS • 4. Types of L/Cs • a. documentary • b. non-documentary • c. revocable • d. irrevocable • e. confirmed • f. transferable

  9. PAYMENT TERMS • D. DRAFTS • 1. Definition: • - unconditional order in writing • - exporter’s order for importer to pay • - at once (sight draft) or • - in future (time draft)

  10. PAYMENT TERMS • 2. Three Functions of Drafts • a. clear evidence of financial obliga- tion • b. reduced financing costs • c. provides negotiable and uncondi- • tional financial instrument • (ie. May be converted to a banker’s acceptance)

  11. PAYMENT TERMS • 3. Types of Drafts • a. sight • b. time • c. clean (no documents needed) • d. documentary

  12. PAYMENT TERMS • E. CONSIGNMENT • 1. Exporter = the consignor • 2. Importer = the consignee • 3. Consignee attempts to sell • goods to a third party; keeps some profit, remits rest to consignor. • 4. Use: Between affiliates

  13. PAYMENT TERMS • F. OPEN ACCOUNT • 1. Creates a credit sale • 2. To importer’s advantage • 3. More popular lately because • a. major surge in global trade • b. credit information improved • c. more global familiarity with exporting.

  14. PAYMENT TERMS • 4. Benefits of Open Accounts: • a. greater flexibility in making • a trade • b. lower transactions costs • 5. Major disadvantage: • highly vulnerable to government currency controls.

  15. II. DOCUMENTS • II. DOCUMENTS USED IN INT’L TRADE • A. Four most used documents • 1. Bill of Lading (most important) • 2. Commercial Invoice • 3. Insurance Certificate • 4. Consular Invoice

  16. DOCUMENTS • B. Bill of Lading • Three functions: • 1. Acts as a contract to carry the goods. • 2. Acts as a shipper’s receipt • 3. Establishes ownership over • goods if negotiable type.

  17. DOCUMENTS • 2. Type of Bills • a. Straight • b. Order • c. On-board • d. Received-for-shipment • e. Clean • f. Foul

  18. DOCUMENTS • C. COMMERCIAL INVOICE • Purpose: • 1. Lists full details of goods shipped • 2. Names of importer/exporter given • 3. Identifies payment terms • 4. List charges for transport and insurance.

  19. DOCUMENTS • D. INSURANCE • 1. Two Categories: • a. Marine: transport by sea • b. Air: transport by air • 2. Insurance Certificate • issued to show proof of insurance • 3. All shipments insured today.

  20. DOCUMENTS • E. CONSULAR INVOICE • Local consulate in host country issues: • a visa for the exporter’s invoice. • requires fee to be paid to consulate.

  21. III. FINANCING TECHNIQUES • III. FINANCING TECHNIQUES • A. Four Types: • 1. Bankers’ Acceptances • a. Creation: drafts accepted • b. Terms: Payable at maturity to holder

  22. FINANCING TECHNIQUES • 2. Discounting • a. Converts exporters’ drafts to cash minus interest to maturity and commissions. • b. Low cost financing with few fees • c. May be with (exporter still liable) or without recourse(bank takes • liability for nonpayment).

  23. FINANCING TECHNIQUES • 3. Factoring • -firms sell accounts receivable to another firm known as the factor. • a. Discount charged by factor • b. Nonrecourse basis: Factor • assumes all payment risk. • c. When used: • 1.) Occasional exporting • 2.) Clients geographically dispersed.

  24. FINANCING TECHNIQUES • 4. Forfaiting • a. Definition: • discounting at a fixed rate without recourse of medium-term accounts receivable denominated in a fully convertible currency. • b. Use: Large capital purchases • c. Most popular in W. Europe

  25. IV. GOVERNMENT SOURCES OF EXPORT FINANCING • IV. GOVERNMENT SOURCES OF EXPORT FINANCING AND CREDIT INSURANCE • A. Export-Import Bank of the U.S. • -known as Ex-Im Bank • -finances and facilitates U.S. exports only.

  26. GOVERNMENT SOURCES OF EXPORT FINANCING • 1. Ex-Im Bank Programs: • a. Direct loans to exporters • b. Intermediate loans to exporters • c. Loan guarantees • d. Preliminary commitments • e. Political and commercial insurance

  27. GOVERNMENT SOURCES OF EXPORT FINANCING • B. Private Export Funding Corporation • (PEFCO) • 1. Finances large sales from private • sources • 2. May purchase loans of U.S. importers • 3. ExIm Bank provides loan guarantees.

  28. GOVERNMENT SOURCES OF EXPORT FINANCING • C. Foreign Credit Insurance Association • (FCIA) • 1. Offers commercial and political • risk insurance • 2. When insured, exporter often • able to obtain financing faster.

  29. V. COUNTERTRADE • V. COUNTERTRADE • A. Three Specific Forms: • 1. Barter • direct exchange in kind • 2. Counterpurchase • sale/purchase of unrelated • goods but with currencies • 3. Buyback • repayment of original purchase through sale of a related product.

  30. COUNTERTRADE • B. When to Use Countertrade • 1. With “soft-currency” developing • countries • 2. When foreign contractor must • perform.

More Related