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Chapter 17

Chapter 17. Pricing Strategies: Countertrade and Terms of Sales/Payment . Chapter Outline. Countertrade - Types of Countertrade - Problems and Opportunities Price Quotation Terms of Sale - Trade Terms - Quotation Guidelines. Chapter Outline . Methods of Financing and Means of payment

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Chapter 17

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  1. Chapter 17 Pricing Strategies: Countertrade and Terms of Sales/Payment

  2. Chapter Outline • Countertrade - Types of Countertrade - Problems and Opportunities • Price Quotation • Terms of Sale - Trade Terms - Quotation Guidelines

  3. Chapter Outline • Methods of Financing and Means of payment - Consignment - Open Account - Cash in Advance - Bill of Exchange (Draft) - Bankers' Acceptance - Letter of Credit

  4. Countertrade • goods for goods trade (vs. monetary trade) • government mandate to pay for goods and services with something else other than cash

  5. Countertrade Advantages • serving as trade financing • buyer getting rid of surplus of own products • no concern for fluctuation of exchange rates

  6. Countertrade Disadvantages • cumbersome and time-consuming • costly • inferior form of exchange - requiring "double coincidence of wants"

  7. Types of Countertrade • Barter - single transaction of direct exchange of products of equal value • Counterpurchase (Parallel Barter) - two transactions of cash sales agreements (of unrelated products) • Compensation Trade (Buyback) - products sold and later bought by a party are related

  8. Types of Countertrade • Offset - for the rights to sell its product in a foreign market, the seller must manufacture the product locally (in the host country) • Clearing Agreement - line or credit established in central banks of two countries - use "clearing account units" for exchange of products

  9. Trade Terms • EXW (Ex Works) - price of product only; nothing else being included • FAS (Free Alongside Ship) - EXW + local transportation in seller's country • FOB (Free on Board) - FAS + loading onto the vessel • CFR (Cost & Freight) - FOB + international transportation

  10. Trade Terms • CIF (Cost, Insurance, and Freight) - CFR + insurance • DEQ (Delivered Ex Quay) - CIF + unloading • DDP (Delivered Duty Paid) - DEQ + local transportation in buyer's country

  11. Methods of Financing & Means of Payment • Consignment • Open Account • Cash in Advance • Bill of Exchange (Draft) - Sight Draft - Time Draft

  12. Methods of Financing & Means of Payment • Bankers' Acceptance • Letter of Credit (L/C) - Revocable vs. Irrevocable - Unconfirmed vs. Confirmed - Standby - Back-to-Back - Transferable

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