International contracting and import finance Click to add subtitle
Objective <ul><li>The objective of this project is stated as following: </li></ul><ul><li>Proper analysis and understanding of international trade </li></ul><ul><li>To understand analyze the financial factors in international contracting </li></ul><ul><li>Training aims at getting maximum exposure to practical working in corporate scenario. </li></ul><ul><li>The importance of internatinal contract </li></ul><ul><li>To learn aout various method and modes of payment </li></ul><ul><li>To learn about the importance of exchange control and hedging in international trade </li></ul>
Company Profile Minerals, Metals, Fertilizers, Coal & Hydrocarbons, Agricultural Commodities, Gems & jewelry, Engineering Items. Product Range No Credit Rated CII, FICCI, FIEO, Assocham, Capexil, etc. Memberships No OEM Service Provided Middle East, Europe and Australia. Import Markets South East Asia, Africa, Middle East, Europe, China and Japan. Export Markets 1963 Year of Establishment US$ 768.3 million (Export Value: US$ 488.8 million) Import Value US$ 1.3 billion Sales Volume State-owned trading house with expertise in bulk cargo. PrimaryCompetitive Advantages 59.9% Import Percentage 37.5% Export Percentage US$ 10.3 million Capital in Dollars US$ 768.3 million (Export Value: US$ 488.8 million) Import Turnover US$ 1.3 billion Export Turnover Trading Company Business Type
MMTC LTD. <ul><li>One of the two highest foreign exchange earner for India, is a leading international trading company with a turnover of over US$ 5 billion. One of the biggest International traders in bulk in the country. </li></ul><ul><li>The coal and hydrocarbons business has achieved a turnover of Rs 18390 million in 2004-05 which comprised of mainly LAM COKE, Coking Coal and steam coal. </li></ul><ul><li>MMTC's diverse trade activities encompass Third Country Trade, Joint Ventures, Link Deals - all modern day tools of international trading. </li></ul><ul><li>Its vast international trade network, which includes a wholly owned international subsidiary in Singapore, spans almost in all countries in Asia, Europe, Africa, Oceania and Americas, giving MMTC a global market coverage </li></ul>
Segments of trade <ul><li>Export </li></ul><ul><li>The mineral ore are exported on long term contract basis or through various global tenders. Export of other commodities are done through participating in global tenders, backup suppliers etc. or as per Government directives as canalizing agency. Exports are done by finalizing contract with various buyers. </li></ul><ul><li>Import </li></ul><ul><li>It is either done on Government account like fertilizers, pulses and edible oil etc. as per the national scenario or positioning or on request of the back up buyer.for import lowest bidder for global tender as per central vigilance commission guidelines . MMTC ltd. keeps the information and know about the credential of both buyer and seller. </li></ul><ul><li>MMTC LTD. is also involved in various Joint Ventures and Third country trades </li></ul>
Contracts for International Sale of Goods (CISG) <ul><li>UN-sponsored convention that establishes uniform-rules for drafting international sales contracts, and sets the legal rights and obligations of the seller and the buyer under such contracts. CISG rules apply automatically to the sales contracts between the countries who have ratified the convention. </li></ul><ul><li>Shipment Contract </li></ul><ul><li>Contract of sale in which a seller bears the risk of loss only until the shipment of goods arrives at its named place of shipment (or port of origin). </li></ul><ul><li>Sales Contract </li></ul><ul><li>A sales contract is an agreement between a buyer and seller covering the sale and delivery of goods, securities, and personal property other than goods or securities </li></ul>
Import trade finance <ul><li>Financing of international trade can be stressful so the companies must be very meticulous while doing international trade. While trading with foreign countries the trader must maintain a record of the payments and must employ proper credit control measures. If financing the exports is not easy then financing for the imports is also not easy. To ensure that the trader receives his money for the overseas sales he has to evaluate the risk entailed in the whole procedure </li></ul>
Modes of Payment <ul><li>SPOT A type of option product that allows an investor to set not only the conditions that need to be met in order to receive a desired payout, but also the size of the payout he or she wishes to receive if the conditions are met. The broker that provides this product will determine the likelihood that the conditions will be met and, in turn, will charge what it feels is an appropriate commission. </li></ul><ul><li>Buyer’s credit </li></ul><ul><li>In the case of Buyer's Credit, the importer requests LC opening Bank to pay the dues on behalf of the importer. Thus this is a form of credit facility given to the importer. </li></ul><ul><li>External Commercial Borrowing with one of the banks abroad with whom the Bank has tie up. For this, the Bank will provide an undertaking to make payment on the new due date. Technically, the Bank credit facility provided to the bank extending the pays the funding Bank </li></ul>
Modes of Payment <ul><li>Supplier credit </li></ul><ul><li>A financing arrangement under which an exporter extends credit to the buyer. When goods or services received on deferred payment terms. It is also called supplier financing. </li></ul><ul><li>Supplier credit financing offer similar benefits as buyer’s credit , though financing can be provided using bills of exchange or promissory notes as well as bank notes. </li></ul>
Requirement of working capital(trade finance) <ul><li>The capital requirement is different from working capital requirement as capital is for whole project while working capital is a trade finance required to fund the project on short term basis. The requirement to fund projct can be met in two ways: </li></ul><ul><li>payment to your supplier through letter of credit </li></ul><ul><li>credit by supplier </li></ul><ul><li>When company designs its loan requirement it first checks out the option which of the above way is more cost efficient and beneficial for the company. The company should payback the loan in the period of product life cycle i.e. after selling of the goods for instance if the product life cycle is for 90 days i.e. the company sells the product in the market the company should make payment in those 90 days only . </li></ul>
PRINCIPAL TERMS OF PAYMENT <ul><li>There are, as indicated in the proceeding paragraphs, different methods of receiving payments for exports: </li></ul><ul><li>Advance or Cash Payment </li></ul><ul><li>Documentary Collection </li></ul><ul><li>Documentary Credit </li></ul><ul><li>Open Account </li></ul><ul><li>Shipment on Consignment </li></ul>
<ul><li>Advance or Cash Payment </li></ul><ul><li>The system operates in many ways, the core element being shipment/delivery of goods only after receipt of the value of goods. Variants of the system are: Cash Payment , Cash With Order, Cash Against Documents, Cash On Delivery, Telegraphic transfer , Mail transfer, Banker’s Drafts and Electronic Transfer </li></ul><ul><li>Documentary Collections </li></ul><ul><li>Documentary collection is a method of executing trade transactions, when the two parties concluding the agreement more or less trust one another, and are prepared to waive safety proposed by letter of credit or guarantee, but still would not like to make deliveries on an open account. For proper use of documentary collection the following conditions should be considered: </li></ul><ul><li>— the guaranteed ability and desire of the buyer to pay; </li></ul><ul><li>— stable political and economic conditions in the importer’s country; </li></ul><ul><li>— the absence of difficulties in obtaining the necessary import licenses and such limits as currency control in the importer’s country. </li></ul>
<ul><li>Open Account </li></ul><ul><li>In a foreign transaction, an open account can be a convenient method of payment if the buyer is well established, has a long and favorable payment record, or has been thoroughly checked for creditworthiness. With an open account, the exporter simply bills the customer, who is expected to pay under agreed terms at a future date. Some of the largest firms abroad make purchases only on open account </li></ul><ul><li>Shipment on Consignment </li></ul><ul><li>A consignment purchase arrangement, the importer/distributor makes payment to the overseas supplier only after a sale to end user is made and payment received. Consignment purchase terms can be the most advantageous to an importer/distributor. It is also considered the most risky term for the overseas supplier. Consignment purchase terms can be the most beneficial method of payment for the importer. In this method of purchase, importer makes the payment only once the goods or imported items are sold to the end user. </li></ul>
Measures Taken to Safeguard the Goods <ul><li>These are the steps taken by the trader to ensure himself of a good deal: </li></ul><ul><li>The credibility and the credit worthiness of the company must be evaluated and a research work must be conducted on them </li></ul><ul><li>The receipt of payments should be taken care of </li></ul><ul><li>The level of risk must be analyzed before jumping into business </li></ul><ul><li>The company should provide an insurance in case it fails to pay for the deal </li></ul><ul><li>Managing the payment from the foreign company is also an important thing to be taken care of </li></ul><ul><li>Finally terms and conditions regarding receiving the payment should be absolutely clear and comprehensible </li></ul>
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