INTERNATIONAL TRADE
Export
• A function of international trade whereby
goods and services produced in one country
are sold to another country
...
Trade dilemma
• International trade (i.e. between and importer and exporter)
must work around a fundamental dilemma:
– The...
• The fundamental dilemma of being unwilling
to trust a stranger in a foreign land is solved
by using a highly respected b...
Benefits of the system
• The system (including the three documents
discussed) has been developed and modified
over centuri...
LETTER OF CREDIT
• Issued by a bank at the request of the
importer
• Bank pays a specified sum to a beneficiary,
normally ...
• Commercial letters of credit are also classified:
– Irrevocable versus revocable
– Usance versus sight
• The primary adv...
DRAFT
• A draft, sometimes called a bill of exchange (B/E),
is the instrument normally used in international
commerce to e...
BILL OF LADING
• The third key document for financing
international trade is the bill of lading or B/L.
• The bill of ladi...
export documents...letter of credit...bill of exchange....bill of lading
export documents...letter of credit...bill of exchange....bill of lading
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export documents...letter of credit...bill of exchange....bill of lading

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international business - trading documents

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export documents...letter of credit...bill of exchange....bill of lading

  1. 1. INTERNATIONAL TRADE
  2. 2. Export • A function of international trade whereby goods and services produced in one country are sold to another country • The sale of such goods will add to producing nations gross output. • Exports are one of the oldest forms of economic transfer, and occur on a large scale between nations that have fewer restrictions on trade, such as tariffs or subsidies.
  3. 3. Trade dilemma • International trade (i.e. between and importer and exporter) must work around a fundamental dilemma: – They live far apart – They speak different languages – They operate in different political environments – They have different culture – Difficulty in tracking down in case of default • In essence, there could be distrust, and clearly the importer and exporter would prefer two different arrangements for payment/goods transfer
  4. 4. • The fundamental dilemma of being unwilling to trust a stranger in a foreign land is solved by using a highly respected bank as an intermediary. • a letter of credit (a bank’s promise to pay) on behalf of the importer. • Two other significant documents are an order bill of lading and a sight draft.
  5. 5. Benefits of the system • The system (including the three documents discussed) has been developed and modified over centuries to protect both importer and exporter from: – The risk of noncompletion – Foreign exchange risk – To provide a means of financing
  6. 6. LETTER OF CREDIT • Issued by a bank at the request of the importer • Bank pays a specified sum to a beneficiary, normally the exporter, on presentation of particular, specified documents • Fee paid by importer for letter of credit • May reduce borrowing ability of importer since the letter is a financial liability
  7. 7. • Commercial letters of credit are also classified: – Irrevocable versus revocable – Usance versus sight • The primary advantage of an L/C is that it reduces risk – the exporter can sell against a bank’s promise to pay rather than against the promise of a commercial firm. • The major advantage of an L/C to an importer is that the importer need not pay out funds until the documents have arrived at the bank that issued the L/C and after all conditions stated in the credit have been fulfilled.
  8. 8. DRAFT • A draft, sometimes called a bill of exchange (B/E), is the instrument normally used in international commerce to effect payment. • A draft is simply an order written by an exporter (seller) instructing an importer (buyer) or its agent to pay a specified amount of money at a specified time. • Required before the buyer can obtain merchandise. • The person or business initiating the draft is known as the maker, drawer, or originator. • Normally this is the exporter who sells and ships the merchandise.
  9. 9. BILL OF LADING • The third key document for financing international trade is the bill of lading or B/L. • The bill of lading is issued to the exporter by a common carrier transporting the merchandise. • It serves three purposes: a receipt, a contract, and a document of title. • Bills of lading are either straight or to order.

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