TIẾNG ANH KINH TẾ Financing international trade slides

 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 d

UNIT 3 FINANCING INTERNATIONAL TRADE

Brief discussion questions

1 What are some of the risks involved in

trading internationally?

2 What payment methods do you know that

are used when exporting or importing goods?

3 What is the role of the banks in

international trade?

2

Suggested answer

1

 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

Suggested answer

2

 Bills for collection

4

Suggested answer

3

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

3

things as requested For example, just transferring money to the account

of the seller/exporter

6

Reading 1

Doing reading comprehensive

tasks in the text book

8

Look at the 2 diagrams below to

explain how a letter of credit works

10

Double-check with the text of

Reading 2

12

Conclusions about each method of payment mentioned above

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

14

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

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

do what is required

16

Advance payment

 Safest for the importer 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

Questions to answer

1 What is the commonest method of payment? Why?

2 What information is there in a letter of credit?

Answer the questions

1 What is the commonest method of payment? Why?

-Letter of credit is the commonest method of payment Because

it is more secure The bank must pay even if the importer defaults on payment

2 What information is there in a letter of credit?

-The name and address of the exporter

-The type of credit (revocable or irrevocable)

-The expiry date

-The name and address of the importer

-The name of the party on whom the bills of exchange are to be

drawn, and whether they are to be at sight or a particular

tenor

-Precise instructions as to the documents against which payment

is to be made

-A brief description of the goods covered by the credit

-The terms of contract and shipment (i.e, whether ‘EXW’, ‘FOB’,

‘CIF’, etc.)

-The amount of the credit, in sterling or a foreign currency

-Shipping details, including whether partshipments and/or

transhipments are allowed Also recorded should be the latest date for shipment and the names of the ports of shipment and discharge (It may be in the best interest of the exporter for shipment to be allowed ‘from any UK port’ so that a choice is available if, for example, some ports are affected by strikes The same applies for the port of discharge