Export Import Countertrade


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Export Import Countertrade

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Export Import Countertrade

  1. 1. International Economics Chapter 13Exporting, Importing, and CountertradeExporting, Importing, and
  2. 2. Why Export? ProfitsGrowing markets and lower costs
  3. 3. Factors to Consider• Financing• Insurance• Currency Exchange Risk
  4. 4. Countertrade• Trading stuff for stuff
  5. 5. Case Study - 3M• FIDO - First In defeats others• Make a little sell a little• Hire local
  6. 6. EMCExport Management CompanyExport Managementwho act Export Specialist Company as the marketing department for client firms
  7. 7. Export Strategy• Hire EMC• Focus on one market• Enter on small scale• Added time & resources• Build relationships• Hire local• Seek opportunities to learn• Consider local production
  8. 8. Trust Ship Goods Send PaymentExporter Importer What happens first? Shipment or payment?
  9. 9. Three InstrumentsLetter of Credit - L/CBill of Exchange - DraftBill of Lading
  10. 10. Financing2. Bank promises Letter of Credit 1. Importer obtainsexporter to pay on LC bank’s promise to payimporter’s behalf 0.5% to 2% on importer’s behalfExporter Bank Importer 3. Exporter ships to 4. Bank pays the 5. Bank gives the bank exporter good to the importer 6. Importer pays the bank Loan to extend payment
  11. 11. AdvantagesMay not trust each other but do trust a reputable bank
  12. 12. Bill of Exchange Draft DraftAn order written by an exporter instructing the importer, or importer’s agent, to pay the specified amount of money at a specified time.
  13. 13. Parties to the DraftMaker - ExporterDrawee - Who the draft ispresented to (Bank)
  14. 14. Sight DraftPayable on presentation
  15. 15. Time DraftPayable at a future date30, 60, 90, or 120 days
  16. 16. Banker’s AcceptanceOnce a draft has been accepted by a bank Trade AcceptanceOnce a draft has been accepted by a business firm
  17. 17. Time Draft Negotiable Can sell Discount9% for 120 days = 3%
  18. 18. Time DraftWhat would a $100,000 draft at 90 days be worth at 8%? 90 ÷ 360 = 1/4 8% ÷ 4 = 2% $100,000 x 98% = $98,000
  19. 19. Bill of LadingA document issued to the exporter by the common carrier transporting the merchandise. It serves as a receipt, a contract, and a document of title
  20. 20. Bill of Lading NegotiableI can sell to a bank
  21. 21. Exporter Importer2. Exporter agrees to fill order 1. Importer orders goods6. Goods shipped to Saudi 3. Importer arranges letter of credit7. Exporter presents draft to bank 13. Importer agrees to pay bank in 90 days11. Exporter sells acceptance draft to bank at discount Importer Exporter Bank Bank5. U.S. bank informs exporter of L/C 4. Saudi bank send L/C to U.S. Bank8. U.S. bank presents draft and bill of lading to Saudi bank 9. Saudi bank accepts draft and returns to U.S. bank10. U.S. bank informs Exporter of acceptance 12. Saudi bank informs importer of arrival of documents.14. U.S. bank collects payment from Saudi bank in 90 days
  22. 22. Import-Export BanksProvides aid in financing
  23. 23. Manage Risk L/CExport Credit Insurance
  24. 24. Countertrade Trade goods for goods No cash in transaction BarterNo foreign exchange currency
  25. 25. Boeing sells ten 747s to Saudi Arabia for crude oil
  26. 26. Countertrade Barter Counterpurchase Offset Coupons or CreditsSwitch Trading - Buying coupons Buybacks - Take percent as
  27. 27. Countertrade - Advantages Creates an option Government requires Creative Competition
  28. 28. Countertrade - Disadvantages Cash is always preferred Inferior quality goodsHave to resell the traded goods
  29. 29. CountertradeGood for large multinationals Japan - sogo shosha