This document discusses various payment methods used in international trade transactions. It describes five basic payment methods: prepayment, letters of credit, drafts, consignment, and open account. Each method carries different risks for the exporter and importer. The document also discusses how letters of credit, drafts, factoring, and banker's acceptances can be used to finance international trade transactions. Finally, it notes how the 2008 credit crisis impacted the use of payment methods as banks experienced financial problems.
This document provides a summary of key topics related to export finance. It begins with an overview of 3 standard payment methods in international trade: clean payments, collection of bills, and letters of credit. Clean payments involve direct handling of documents between trading partners while letters of credit involve banks guaranteeing payment. The document then discusses various types of letters of credit and collection methods like documents against payment and acceptance. It also covers associated risks, parties involved, and regulatory guidelines governing export finance.
How import Finance works in daily life and its usessharjilbiki4
Letter of credit is a conditional guarantee issued by a bank on behalf of an importer to make payment to an exporter for shipped goods. It minimizes risks in international trade where parties may not know each other. Letters of credit provide protection to importers and exporters and are one of the most common and secure import financing methods. They involve an importer, exporter, issuing bank, advising bank, and sometimes a confirming or negotiating bank, with each party playing a defined role in the transaction process and documentation requirements.
The document discusses various import procedures and financing methods. It begins by outlining the key steps in the import process: 1) obtaining licenses, 2) placing orders and sending indents, 3) obtaining foreign exchange, 4) arranging payment, and 5) paying customs duties. It then examines various payment methods including letters of credit, documentary collections, cash-in-advance, and open accounts. It also discusses bills of lading and the roles of various parties in a letter of credit transaction.
methods of payment in international tradedeepak gupta
The document discusses various payment methods in international trade, including cash-in-advance, letters of credit, and documentary collections. Cash-in-advance requires upfront payment but provides no risk to exporters. Letters of credit involve banks and shift risk between buyers and sellers. Documentary collections are less complex than letters of credit but provide limited recourse if payment is not made. The key methods, their characteristics, and transaction flows are outlined.
This document provides an overview of international trade and banking practices. It discusses several key topics:
Payment methods for international transactions including cash in advance, documentary collections, letters of credit, open accounts, and combining methods. Letters of credit are described in more detail including parties involved and types of letters of credit.
Trade finance methods like accounts receivable financing, factoring, letters of credit, banker's acceptances, working capital financing and counter-trade are also outlined.
The training aims to acquaint trainees with basic concepts of international trade and banking practices so they understand payment methods, documentation, risks and how trade is financed.
An LC is a commitment by a buyer's bank to pay the seller once the required documents are presented, protecting both parties. The bank only handles document transfer and does not oversee goods, reducing risk. While ensuring payment, LCs require exact document matching and are complex. They work best for new trade relationships where the buyer's bank is trusted but seller lacks credit info on buyer.
An LC is a commitment by a buyer's bank to pay the seller once the required documents are presented, protecting both parties. The bank only handles document transfer and does not oversee goods, reducing risk. While ensuring payment, LCs require exact document matching and are complex. They work best for new trade relationships where the buyer's bank is trusted but seller lacks credit info on buyer.
Import export guide - Letter of Creditpratikasnani
This document provides an overview of letters of credit from the perspectives of importers and exporters. It defines the key parties involved, such as the issuing bank, advising bank, exporter, and importer. It explains that a letter of credit is a payment mechanism where a bank guarantees payment to the exporter if they present documents that meet the terms outlined in the letter of credit. The document then walks through the step-by-step process of a typical letter of credit transaction and highlights some of the advantages and disadvantages for importers and exporters.
This document provides a summary of key topics related to export finance. It begins with an overview of 3 standard payment methods in international trade: clean payments, collection of bills, and letters of credit. Clean payments involve direct handling of documents between trading partners while letters of credit involve banks guaranteeing payment. The document then discusses various types of letters of credit and collection methods like documents against payment and acceptance. It also covers associated risks, parties involved, and regulatory guidelines governing export finance.
How import Finance works in daily life and its usessharjilbiki4
Letter of credit is a conditional guarantee issued by a bank on behalf of an importer to make payment to an exporter for shipped goods. It minimizes risks in international trade where parties may not know each other. Letters of credit provide protection to importers and exporters and are one of the most common and secure import financing methods. They involve an importer, exporter, issuing bank, advising bank, and sometimes a confirming or negotiating bank, with each party playing a defined role in the transaction process and documentation requirements.
The document discusses various import procedures and financing methods. It begins by outlining the key steps in the import process: 1) obtaining licenses, 2) placing orders and sending indents, 3) obtaining foreign exchange, 4) arranging payment, and 5) paying customs duties. It then examines various payment methods including letters of credit, documentary collections, cash-in-advance, and open accounts. It also discusses bills of lading and the roles of various parties in a letter of credit transaction.
methods of payment in international tradedeepak gupta
The document discusses various payment methods in international trade, including cash-in-advance, letters of credit, and documentary collections. Cash-in-advance requires upfront payment but provides no risk to exporters. Letters of credit involve banks and shift risk between buyers and sellers. Documentary collections are less complex than letters of credit but provide limited recourse if payment is not made. The key methods, their characteristics, and transaction flows are outlined.
This document provides an overview of international trade and banking practices. It discusses several key topics:
Payment methods for international transactions including cash in advance, documentary collections, letters of credit, open accounts, and combining methods. Letters of credit are described in more detail including parties involved and types of letters of credit.
Trade finance methods like accounts receivable financing, factoring, letters of credit, banker's acceptances, working capital financing and counter-trade are also outlined.
The training aims to acquaint trainees with basic concepts of international trade and banking practices so they understand payment methods, documentation, risks and how trade is financed.
An LC is a commitment by a buyer's bank to pay the seller once the required documents are presented, protecting both parties. The bank only handles document transfer and does not oversee goods, reducing risk. While ensuring payment, LCs require exact document matching and are complex. They work best for new trade relationships where the buyer's bank is trusted but seller lacks credit info on buyer.
An LC is a commitment by a buyer's bank to pay the seller once the required documents are presented, protecting both parties. The bank only handles document transfer and does not oversee goods, reducing risk. While ensuring payment, LCs require exact document matching and are complex. They work best for new trade relationships where the buyer's bank is trusted but seller lacks credit info on buyer.
Import export guide - Letter of Creditpratikasnani
This document provides an overview of letters of credit from the perspectives of importers and exporters. It defines the key parties involved, such as the issuing bank, advising bank, exporter, and importer. It explains that a letter of credit is a payment mechanism where a bank guarantees payment to the exporter if they present documents that meet the terms outlined in the letter of credit. The document then walks through the step-by-step process of a typical letter of credit transaction and highlights some of the advantages and disadvantages for importers and exporters.
This document provides an overview and instructions for importers and exporters using letters of credit for international trade. It defines the key parties involved, describes the basic process of how a letter of credit transaction works, and highlights advantages and disadvantages for both importers and exporters. The second half provides detailed instructions for importers on completing a letter of credit application form, including explanations of each field. It also covers common questions around amendments, documents required, and other letter of credit types.
The document discusses various methods for securing payment in international business transactions. It begins by explaining that payment risk is higher in international business due to less information about foreign partners and greater difficulty pursuing debtors abroad. It then outlines several common payment options: cash in advance, cash against documents, letters of credit, open account, and mixed payments. Letters of credit and cash against documents involve the exchange of shipping documents for payment. Open accounts carry the most risk as payment occurs after goods are received. The document also recommends export insurance and mixing payment terms to suit different needs.
Letters of credit is a written commitment to pay, by a buyer's or importer's bank (called the issuing bank) to the seller's or exporter's bank (called the accepting bank, negotiating bank, or paying bank). It is also known as a documentary credit.
Banks play a crucial role in international trade by providing financial services and advice. They facilitate various payment methods between importers and exporters, including letters of credit, wire transfers, and banker's drafts. Letters of credit are one of the most widely used payment mechanisms, where the importer's bank provides a letter of credit to the exporter guaranteeing payment upon presentation of shipping documents. The key parties involved in a letter of credit transaction are the applicant/importer, issuing bank, beneficiary/exporter, advising bank, confirming bank, negotiating bank, and reimbursing bank. Banks help reduce risk and ensure secure payment for both parties in international trade transactions.
The document discusses documentary collections and key concepts in international trade. It defines a documentary collection as a trade transaction where the exporter hands over documents like invoices and bills of lading to their bank for collection of payment. It outlines the key players in a collection like the principal, remitting bank, collecting bank, and drawee. It then describes the 8 step collection procedure and 3 main types of collections: documents against payment, documents against acceptance, and acceptance documents against payment. It concludes with notes on payment and monitoring the collection process.
This shows short details about Letter of Credit, its types and procedures so that one can get necessary information regarding this spending just few minutes.
The document discusses international trade payment methods and letters of credit. It describes key parties in a letter of credit transaction including the applicant, issuing bank, beneficiary, advising bank, confirming bank, and nominated bank. It explains how a letter of credit transaction works in 11 steps and defines major documents used in letters of credit like bills of lading, certificates of origin, and commercial invoices. The types of letters of credit are also defined as revocable or irrevocable.
A letter of credit is a document issued by a bank guaranteeing payment to a seller when they provide stipulated documents to the issuing bank. There are two main types - irrevocable letters of credit cannot be amended or cancelled without consent, while revocable letters can be cancelled at any time. The letter of credit transaction involves an applicant (buyer), beneficiary (seller), issuing bank, advising bank, and sometimes a confirming bank. It guarantees payment to the seller when they provide the required documents such as a commercial invoice, bill of lading, and certificate of origin to the advising or confirming bank.
This document discusses various terms and concepts related to trade finance. It begins by defining key trade finance instruments like letters of credit, and explains the roles of parties involved like applicant, issuing bank, beneficiary, etc. It then discusses types of payments and credits in international trade like open account, documents against payment, and confirmed letters of credit. The rest of the document covers topics like pre-shipment and post-shipment finance, types of credits, documents used, risks involved, and regulatory requirements for trade finance. Diagrams are provided to illustrate the process and flow of letters of credit and back-to-back credits.
This document is a dissertation submitted by Priyanshi Gurung for the partial fulfillment of a Bachelor of Business Administration degree from Shri Guru Ram Rai University. It discusses letter of credit and includes an introduction describing letter of credit, its mechanism and parties involved. It also provides an example of how a letter of credit transaction works between an Indian exporter and a US importer. The dissertation is certified as Priyanshi Gurung's original work and includes acknowledgments, table of contents, and the beginning of the first chapter which provides further details about letter of credit.
TRADE FINANCE PRESENTATION.
Trade finance represents the financial instruments and products that are used by companies to facilitate international trade and commerce. Trade finance makes it possible and easier for importers and exporters to transact business through trade.
Trade finance covers different types of activities including issuing letters of credit, lending, forfaiting, export credit and financing, and factoring. The trade financing process involves several different parties, including the buyer and seller, the trade financier, export credit agencies, and insurers.
This document discusses various concepts related to international trade financing. It defines trade finance as the financial assistance provided by banks to facilitate international business transactions. Various financial instruments are discussed, including letters of credit, which are a promise by a bank to pay the seller if documents are submitted on time. The roles of importers, exporters, and banks in international trade are explained. Different payment methods like open account, advance payment, documentary collection, and letters of credit are also summarized.
Payment for exports and export promotion schemeHarender Singh
Payment for exports refers to the process of receiving payment from a foreign buyer for goods or services that have been exported. The payment process for exports can be complex and involves various risks, including currency exchange rate fluctuations, non-payment, and fraud.
There are several methods of payment that can be used for exports, including:
Advance Payment: This is where the buyer pays for the goods or services in advance, before they are shipped or delivered. This method is the most secure for the exporter, but it may not be acceptable to the buyer who may not want to bear the risk of paying in advance.
Letters of Credit: This is a guarantee issued by a bank on behalf of the buyer that the payment will be made to the exporter once the goods or services have been delivered and the required documentation is provided. Letters of credit provide a secure method of payment for the exporter as long as all conditions of the letter of credit are met.
Documentary Collections: This is a process where the exporter ships the goods to the buyer and provides the shipping documents to their bank. The bank then sends the documents to the buyer's bank, who will release the documents to the buyer once payment has been made.
Open Account: This is where the exporter ships the goods to the buyer and allows the buyer to pay at a later date, typically 30-90 days after the shipment. This method is the least secure for the exporter as they may not receive payment if the buyer defaults.
It is important for exporters to carefully consider their payment options and to understand the risks associated with each method. Exporters may also want to consider using the services of a trade finance professional or export credit agency to help mitigate risks and ensure timely payment.
The document discusses various methods of payment used in international trade. It describes cash in advance, where payment is received before shipment of goods; letters of credit, where a bank guarantees payment to the exporter if documents are presented; and documentary collections, where banks facilitate payment from the importer to exporter after shipment. It outlines the parties involved in letters of credit and the typical process. The advantages and disadvantages as well as suitability of each payment method is explained. Examples are provided of industries that commonly use certain methods. Factors related to wire transfers, credit cards, and checks are also summarized.
The document discusses various methods of international bank payments including SWIFT payments, letters of credit, bank drafts, and open accounts. It also covers topics like nostro/vostro accounts, foreign exchange, international payment requirements and the benefits of electronic payments. SWIFT provides a secure platform for banks to exchange payment messages and settle accounts between correspondent banks globally. Letters of credit involve an issuing bank, advising bank, beneficiary, and sometimes a confirming bank to facilitate international trade transactions.
This document provides information on various sources and forms of export financing in India. Commercial banks provide pre-shipment financing to exporters at concessional rates, which is then refinanced by institutions like the Reserve Bank of India and Export Import Bank of India. Pre-shipment financing helps exporters with costs before shipping goods overseas. Post-shipment financing is provided against evidence of shipment and helps export exporters between shipment and receiving payment. Other forms discussed include forfaiting, which transfers risk to a third party, and factoring, where a factor provides financing and manages receivables. Related institutions like RBI, ECGC, and DGFT also support export policies and programs.
This document discusses export finance and its instruments. It begins by defining pre-shipment finance as financing for the purchase, processing or packing of goods meant for export, while post-shipment finance refers to assistance provided after goods have been shipped. To be eligible, the exporter or supplier of goods to designated agencies must be involved. Common needs in export financing include mitigating risks of non-completion and ensuring payment. Key instruments discussed are letters of credit issued by importers' banks to pay exporters, drafts/bills of exchange ordering payment, and bills of lading serving as receipts, contracts and documents of title.
There are 3 main methods of payment in international trade: clean payment, collection of bills, and letters of credit. Clean payment involves direct handling of documents between trading partners with a limited role for banks. It offers a cheap option but the exporter assumes risks. Collection of bills involves banks handling documents with options for release against payment or acceptance. Letters of credit are a written undertaking from the importer's bank to pay the exporter up to a stated amount against stipulated documents, and can be revocable or irrevocable, for sight or time, and confirmed.
This document provides an overview and instructions for importers and exporters using letters of credit for international trade. It defines the key parties involved, describes the basic process of how a letter of credit transaction works, and highlights advantages and disadvantages for both importers and exporters. The second half provides detailed instructions for importers on completing a letter of credit application form, including explanations of each field. It also covers common questions around amendments, documents required, and other letter of credit types.
The document discusses various methods for securing payment in international business transactions. It begins by explaining that payment risk is higher in international business due to less information about foreign partners and greater difficulty pursuing debtors abroad. It then outlines several common payment options: cash in advance, cash against documents, letters of credit, open account, and mixed payments. Letters of credit and cash against documents involve the exchange of shipping documents for payment. Open accounts carry the most risk as payment occurs after goods are received. The document also recommends export insurance and mixing payment terms to suit different needs.
Letters of credit is a written commitment to pay, by a buyer's or importer's bank (called the issuing bank) to the seller's or exporter's bank (called the accepting bank, negotiating bank, or paying bank). It is also known as a documentary credit.
Banks play a crucial role in international trade by providing financial services and advice. They facilitate various payment methods between importers and exporters, including letters of credit, wire transfers, and banker's drafts. Letters of credit are one of the most widely used payment mechanisms, where the importer's bank provides a letter of credit to the exporter guaranteeing payment upon presentation of shipping documents. The key parties involved in a letter of credit transaction are the applicant/importer, issuing bank, beneficiary/exporter, advising bank, confirming bank, negotiating bank, and reimbursing bank. Banks help reduce risk and ensure secure payment for both parties in international trade transactions.
The document discusses documentary collections and key concepts in international trade. It defines a documentary collection as a trade transaction where the exporter hands over documents like invoices and bills of lading to their bank for collection of payment. It outlines the key players in a collection like the principal, remitting bank, collecting bank, and drawee. It then describes the 8 step collection procedure and 3 main types of collections: documents against payment, documents against acceptance, and acceptance documents against payment. It concludes with notes on payment and monitoring the collection process.
This shows short details about Letter of Credit, its types and procedures so that one can get necessary information regarding this spending just few minutes.
The document discusses international trade payment methods and letters of credit. It describes key parties in a letter of credit transaction including the applicant, issuing bank, beneficiary, advising bank, confirming bank, and nominated bank. It explains how a letter of credit transaction works in 11 steps and defines major documents used in letters of credit like bills of lading, certificates of origin, and commercial invoices. The types of letters of credit are also defined as revocable or irrevocable.
A letter of credit is a document issued by a bank guaranteeing payment to a seller when they provide stipulated documents to the issuing bank. There are two main types - irrevocable letters of credit cannot be amended or cancelled without consent, while revocable letters can be cancelled at any time. The letter of credit transaction involves an applicant (buyer), beneficiary (seller), issuing bank, advising bank, and sometimes a confirming bank. It guarantees payment to the seller when they provide the required documents such as a commercial invoice, bill of lading, and certificate of origin to the advising or confirming bank.
This document discusses various terms and concepts related to trade finance. It begins by defining key trade finance instruments like letters of credit, and explains the roles of parties involved like applicant, issuing bank, beneficiary, etc. It then discusses types of payments and credits in international trade like open account, documents against payment, and confirmed letters of credit. The rest of the document covers topics like pre-shipment and post-shipment finance, types of credits, documents used, risks involved, and regulatory requirements for trade finance. Diagrams are provided to illustrate the process and flow of letters of credit and back-to-back credits.
This document is a dissertation submitted by Priyanshi Gurung for the partial fulfillment of a Bachelor of Business Administration degree from Shri Guru Ram Rai University. It discusses letter of credit and includes an introduction describing letter of credit, its mechanism and parties involved. It also provides an example of how a letter of credit transaction works between an Indian exporter and a US importer. The dissertation is certified as Priyanshi Gurung's original work and includes acknowledgments, table of contents, and the beginning of the first chapter which provides further details about letter of credit.
TRADE FINANCE PRESENTATION.
Trade finance represents the financial instruments and products that are used by companies to facilitate international trade and commerce. Trade finance makes it possible and easier for importers and exporters to transact business through trade.
Trade finance covers different types of activities including issuing letters of credit, lending, forfaiting, export credit and financing, and factoring. The trade financing process involves several different parties, including the buyer and seller, the trade financier, export credit agencies, and insurers.
This document discusses various concepts related to international trade financing. It defines trade finance as the financial assistance provided by banks to facilitate international business transactions. Various financial instruments are discussed, including letters of credit, which are a promise by a bank to pay the seller if documents are submitted on time. The roles of importers, exporters, and banks in international trade are explained. Different payment methods like open account, advance payment, documentary collection, and letters of credit are also summarized.
Payment for exports and export promotion schemeHarender Singh
Payment for exports refers to the process of receiving payment from a foreign buyer for goods or services that have been exported. The payment process for exports can be complex and involves various risks, including currency exchange rate fluctuations, non-payment, and fraud.
There are several methods of payment that can be used for exports, including:
Advance Payment: This is where the buyer pays for the goods or services in advance, before they are shipped or delivered. This method is the most secure for the exporter, but it may not be acceptable to the buyer who may not want to bear the risk of paying in advance.
Letters of Credit: This is a guarantee issued by a bank on behalf of the buyer that the payment will be made to the exporter once the goods or services have been delivered and the required documentation is provided. Letters of credit provide a secure method of payment for the exporter as long as all conditions of the letter of credit are met.
Documentary Collections: This is a process where the exporter ships the goods to the buyer and provides the shipping documents to their bank. The bank then sends the documents to the buyer's bank, who will release the documents to the buyer once payment has been made.
Open Account: This is where the exporter ships the goods to the buyer and allows the buyer to pay at a later date, typically 30-90 days after the shipment. This method is the least secure for the exporter as they may not receive payment if the buyer defaults.
It is important for exporters to carefully consider their payment options and to understand the risks associated with each method. Exporters may also want to consider using the services of a trade finance professional or export credit agency to help mitigate risks and ensure timely payment.
The document discusses various methods of payment used in international trade. It describes cash in advance, where payment is received before shipment of goods; letters of credit, where a bank guarantees payment to the exporter if documents are presented; and documentary collections, where banks facilitate payment from the importer to exporter after shipment. It outlines the parties involved in letters of credit and the typical process. The advantages and disadvantages as well as suitability of each payment method is explained. Examples are provided of industries that commonly use certain methods. Factors related to wire transfers, credit cards, and checks are also summarized.
The document discusses various methods of international bank payments including SWIFT payments, letters of credit, bank drafts, and open accounts. It also covers topics like nostro/vostro accounts, foreign exchange, international payment requirements and the benefits of electronic payments. SWIFT provides a secure platform for banks to exchange payment messages and settle accounts between correspondent banks globally. Letters of credit involve an issuing bank, advising bank, beneficiary, and sometimes a confirming bank to facilitate international trade transactions.
This document provides information on various sources and forms of export financing in India. Commercial banks provide pre-shipment financing to exporters at concessional rates, which is then refinanced by institutions like the Reserve Bank of India and Export Import Bank of India. Pre-shipment financing helps exporters with costs before shipping goods overseas. Post-shipment financing is provided against evidence of shipment and helps export exporters between shipment and receiving payment. Other forms discussed include forfaiting, which transfers risk to a third party, and factoring, where a factor provides financing and manages receivables. Related institutions like RBI, ECGC, and DGFT also support export policies and programs.
This document discusses export finance and its instruments. It begins by defining pre-shipment finance as financing for the purchase, processing or packing of goods meant for export, while post-shipment finance refers to assistance provided after goods have been shipped. To be eligible, the exporter or supplier of goods to designated agencies must be involved. Common needs in export financing include mitigating risks of non-completion and ensuring payment. Key instruments discussed are letters of credit issued by importers' banks to pay exporters, drafts/bills of exchange ordering payment, and bills of lading serving as receipts, contracts and documents of title.
There are 3 main methods of payment in international trade: clean payment, collection of bills, and letters of credit. Clean payment involves direct handling of documents between trading partners with a limited role for banks. It offers a cheap option but the exporter assumes risks. Collection of bills involves banks handling documents with options for release against payment or acceptance. Letters of credit are a written undertaking from the importer's bank to pay the exporter up to a stated amount against stipulated documents, and can be revocable or irrevocable, for sight or time, and confirmed.
Similar to Ch 6 International Financail MGT.ppt (20)
The document discusses factors that influence the development of international accounting standards and practices. It identifies 8 key factors: sources of finance, legal systems, political/economic ties between countries, inflation levels, taxation, economic development, education levels, and culture. Accounting systems vary between countries based on differences in these underlying developmental factors. Understanding how the factors shape accounting in different environments helps explain diversity and similarities between nations' accounting standards and practices.
This document provides an overview of logistics management. It defines logistics as the management of the flow of goods, resources, and information from the point of origin to the destination. The goal of logistics management is to ensure the efficient delivery of the right product, at the right cost, quantity, quality, place and time to customers. It discusses the key components of logistics including transportation, inventory planning, warehousing, and packaging. It also outlines the objectives and major functions of logistics management such as transportation management, warehouse management, and inventory management.
This document discusses two techniques for business decision making: cost-benefit analysis and SWOT analysis.
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The document provides guidance on properly conducting a SWOT analysis, including examples of questions to consider for each component. It also outlines how to analyze and apply the results of a SWOT analysis to identify
This chapter discusses the consolidation of financial information for business combinations. It explains that consolidated financial statements combine the financial data of a parent company and its subsidiaries. The chapter outlines the acquisition method for accounting for business combinations, where one company obtains control of another. Under this method, the consideration transferred is allocated to identifiable assets acquired and liabilities assumed based on their fair values. Goodwill arises when the consideration exceeds the fair values. The chapter also discusses how pre-existing goodwill and in-process R&D are treated under the acquisition method.
This document provides an overview of different types of charts and graphs that can be used to visualize data, including histograms, frequency polygons, ogives, pie charts, stem and leaf plots, Pareto charts, and scatter plots. It discusses the key concepts of grouped versus ungrouped data, constructing frequency distributions, calculating relative and cumulative frequencies, and provides examples of how to build each type of chart using sample data sets.
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This document provides an outline for a course on principles of auditing and assurance. It introduces key topics that will be covered, including the definition of an audit, elements of an assurance engagement, appropriate evidence and reporting. An audit is defined as an independent examination and expression of an opinion on an entity's financial statements. It discusses the roles of the practitioner, responsible party and intended users. Criteria are also outlined as the benchmarks used to evaluate the subject matter of an assurance engagement.
Job-order costing is a system used when a company produces unique products in small batches. It requires tracing costs to individual jobs and maintaining separate cost records for each job. Direct materials, direct labor, and manufacturing overhead costs are charged to work in process and then transferred to finished goods as jobs are completed. Manufacturing overhead is applied to jobs using a predetermined overhead rate. Nonmanufacturing costs are expensed in the period incurred rather than assigned to jobs.
chapter- 1 inroduction to advanced financial accounting.pptxMohamedAbdi347025
This document provides an overview of accounting concepts including the framework, objectives, and standards of accounting. It defines accounting as recording, classifying, and summarizing financial transactions and events. The key objectives of accounting are to systematically record transactions, ascertain financial results and position, and provide information to decision makers. International standards like IFRS and domestic standards like US GAAP aim to standardize accounting policies for consistency and comparability.
The document provides an overview of consolidation of financial information and business combinations. It discusses reasons why firms combine, including cost savings, market entry, economies of scale, and diversification. It describes the consolidation process, which involves preparing a single set of consolidated financial statements by bringing together subsidiaries' and the parent's financial data, eliminating reciprocal accounts and intra-entity transactions. Business combinations can be achieved through transactions that result in one entity obtaining control over one or more businesses and creating a single economic entity that requires consolidated financial statements.
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The APCO Geopolitical Radar - Q3 2024 The Global Operating Environment for Bu...APCO
The Radar reflects input from APCO’s teams located around the world. It distils a host of interconnected events and trends into insights to inform operational and strategic decisions. Issues covered in this edition include:
2. The payment for a transaction between an
exporter (seller) and an importer (buyer) is
complicated because of concerns that one
party might not fulfill its obligation to the
other party.
First, the exporter may be concerned that it
will not receive the payment from the
importer.
Second, even if the importer is willing to
make payment, its government might
impose exchange controls that prevent it
from paying the exporter.
2
3. Third, the importer may not trust the
exporter to ship the products ordered.
Financial managers must be aware of
methods that they can use to ensure delivery
of the products or the payment in
international trade.
In general, five basic methods of payment are
used to settle international transactions, each
of which carries a different degree of risk for
the exporter and the importer.
3
4. ■■ 1. a. Prepayment
■■ 1. b. Letters of credit
■■ 1. c. Drafts
■■ 1. d. Consignment
■■ 1. e. Open account
■■ 1. f. Impact of the Credit Crisis on
Payment Methods
4
5. Under the prepayment method, the exporter
will not ship the products until it has received
payment from the importer.
Payment is usually made in the form of an
international wire transfer to the exporter’s
bank account or a foreign bank draft.
International electronic payment systems also
allow firms engaged in international trade to
make electronic credits and debits through an
intermediary bank.
This method provides the exporter with the
most protection.
5
6. In most cases, exporters require prepayment
when dealing for the first time with importers
whose creditworthiness is unknown or whose
countries are in financial difficulty.
Most importers, however, may not be willing
to prepay because of concerns that the
exporter might not ship the products
ordered.
6
7. The letter of credit (L/C) is a written
obligation to ensure that the importer makes
payment to the exporter once it receives
proof that the products have been shipped.
Specifically, the importer’s bank (also referred
to as the “issuing bank”) issues an L/C by
making a written commitment on behalf of
the importer to pay the exporter when the
importer’s bank receives shipping documents
confirming that the exporter has shipped the
products to the importer.
7
8. The exporter benefits from the L/C because it
may trust the importer’s bank more than the
importer itself to make payment.
In the usual procedure, the exporter’s bank
(also referred to as the “advising bank”) sends
the shipping documents to the importer’s
bank to verify that the products have been
shipped.
8
9. Key Documents in Shipments Facilitated by a
Letter of Credit The key document in an
international shipment under an L/C is the
bill of lading (B/L).
The B/L serves as a receipt for shipment and
a summary of freight charges; most
importantly, it conveys title to the
merchandise.
If the merchandise is to be shipped by boat,
the carrier will create an ocean bill of lading.
When the merchandise is shipped by air, the
carrier will create an airway bill.
9
10. The B/L usually includes the following
documents:-
■■ A description of the merchandise
■■ Identification marks on the merchandise
■■ Evidence of loading (receiving) ports
■■ Name of the exporter (shipper)
■■ Name of the importer
■■ Status of freight charges (prepaid or
collect)
■■ Date of shipment
10
11. A draft (or bill of exchange) represents a
written order from the exporter instructing
the importer to pay the face amount of the
draft either when it is presented or at a
specified future date.
The documents for an L/C generally include a
draft, but a draft may also be used without an
L/C.
However, a draft without an L/C affords the
exporter less protection than an L/C because
no bank is obligated to make the payment on
the importer’s behalf.
11
12. Most trade transactions handled on a draft
basis are processed through banking
channels.
In these transactions, which are known as
documentary collections, banks on both ends
act as intermediaries in processing the
shipping documents and collecting payment.
When the products are shipped under a sight
draft, the exporter is paid once the shipment
has been made and the draft is presented to
the importer for payment
12
13. Under a consignment arrangement, the
exporter ships the products to the importer
while still retaining actual title to the
merchandise.
The importer has access to the products but
does not have to pay for them until they have
been sold to a third party.
The exporter trusts the importer to remit
payment for the products sold at that time.
If the importer fails to pay, the exporter has
limited recourse because no draft is involved
and the products have already been sold.
13
14. In an open account transaction, the exporter
ships the merchandise and expects the
importer to send payment according to the
agreed-upon terms. With this approach, the
exporter relies fully upon the importer’s
financial creditworthiness and integrity.
This method is used only when the exporter
and the importer have mutual trust and a
great deal of experience with each other.
Despite the risks, open account transactions
are widely utilized, particularly among the
industrialized countries in North America and
14
15. When the credit crisis intensified in the fall of
2008, international trade transactions stalled.
Commercial banks facilitate trade
transactions because they are usually trusted
to guarantee payment on behalf of an
importer.
However, during the credit crisis, many
financial institutions experienced financial
problems.
15
16. Consequently, exporters lost trust in
commercial banks, and did not want to
export products even if an importer’s bank
would guarantee payment.
The 2008–2009 credit crisis illustrated how
international trade is highly reliant on the
soundness and integrity of commercial
banks.
16
17. In any international trade transaction, credit
is provided by the exporter, the importer, one
or more financial institutions, or any
combination of these.
The exporter may have sufficient cash flows
to finance the entire trade cycle, beginning
with the production of the product until
payment is eventually made by the importer.
This form of credit is known as supplier
credit because the exporter that supplies the
products also provides the credit.
17
18. If the exporter does not have sufficient cash
to fund the entire cycle, it may require bank
financing, or the importer will have to finance
the transaction.
Thus, commercial banks commonly play an
integral role in trade financing on both sides
of a transaction.
The following are some of the more popular
methods of financing international trade:-
18
19. ■■ 2. a. Accounts receivable financing
■■ 2. b. Factoring
■■ 2. c. Letters of credit
■■ 2. d. Banker’s acceptances
■■ 2. e. Medium-term capital goods
financing (forfaiting)
■■ 2. f. Countertrade
19
20. An exporter may be willing to ship products
to an importer without an assurance of
payment from a bank, by using an open
account shipment or a time draft.
Prior to shipment, the exporter should
conduct a credit check of the importer to
determine its creditworthiness.
If the exporter is willing to wait for payment,
it will extend credit to the importer.
If the exporter needs funds immediately, it
may obtain financing from a bank.
20
21. In an arrangement referred to as accounts
receivable financing, the bank will provide a
loan to the exporter secured by the account
receivable.
The bank’s loan is made to the exporter
based on its creditworthiness.
If the importer fails to pay the exporter for
any reason, the exporter is still responsible
for repaying the bank.
21
22. When an exporter ships products before
receiving payment, its accounts receivable
balance increases.
Unless the exporter has received a loan from
a bank, it is initially financing the transaction
and must monitor the collections of
receivables.
Because it faces the danger that the importer
will never pay at all, the exporter may decide
to sell the accounts receivable to a third
party, known as a factor.
22
23. The factor then assumes all responsibility for
collecting from the importer and the
associated credit risk. The factor usually
purchases the receivable at a discount and
also receives a flat processing fee.
Before purchasing the receivable, the factor
conducts a credit check on the importer.
In international transactions, MNCs may use
cross-border factoring, which involves a
network of factors in various countries that
assess credit risk.
23
24. Factoring provides several benefits to the
exporter.
First, by selling the accounts receivable, the
exporter does not have to worry about the
costs of maintaining and monitoring an
accounts receivable accounting ledger.
Second, the factor assumes the credit risk, so
the exporter does not have to assess the
creditworthiness of the importer.
Finally, by selling the receivable to the factor,
the exporter obtains immediate payment and
improves its cash flow.
24
25. Letters of credit are not only an important
payment method in international trade (as
described earlier), but also a source of
financing.
Many L/Cs are payable at a specified future
date, meaning that the exporter provides
financing to the importer until the importer
(or the importer’s bank) makes its payment to
the exporter.
The importer’s bank may also provide
financing. When an importer obtains an L/C,
it must pay its bank the amount of the L/C
25
26. A banker’s acceptance (B/A) is a bill of
exchange, or time draft, that is issued by a
firm and guaranteed by a bank.
As the first step in creating a banker’s
acceptance in international trade, the
importer orders products from the exporter.
The importer then requests its local bank to
create an L/C on its behalf that will ensure
payment to the exporter.
26
27. The exporter presents a time draft along with
the shipping documents to its local bank, and
the exporter’s bank sends the time draft
along with the shipping documents to the
importer’s bank.
The importer’s bank accepts (agrees to) the
conditions of the draft, thereby creating a
banker’s acceptance.
27
28. Because capital goods are often quite
expensive, an importer may not be able to
make payment on the products within a short
time period.
In such a case, longer-term financing may be
required.
The exporter might be able to provide
financing for the importer but may not desire
to do so because the financing may extend
over several years
28
29. In this case, a type of trade finance known as
forfeiting could be used.
Forfeiting refers to the purchase of financial
obligations, such as bills of exchange or
promissory notes, from the original holder
(usually, the exporter).
In a for fait transaction, the importer issues a
promissory note to pay the exporter for the
imported products over a period that
generally ranges from three to seven years.
The exporter then sells the notes to the
forfaiting bank.
29
30. The term countertrade denotes all types of foreign
trade transactions in which the sale of products to
one country is linked to the purchase or exchange
of products from that same country.
Some types of countertrade, such as barter, have
existed for thousands of years.
Only recently, however, has countertrade gained
popularity and importance.
The growth in various types of countertrade has
been fueled by large balance-of-payment
disequilibria, foreign currency shortages, the debt
problems of less developed countries, and stagnant
worldwide demand.
30
31. Barter is the exchange of products between
two parties without the use of any currency as
a medium of exchange.
Most barter arrangements are one-time
transactions governed by a single contract
An example would be the exchange of 100
tons of wheat from Canada for 20 tons of
shrimp from Ecuador.
In a compensation or clearing-account
arrangement, the delivery of products to one
party is compensated for by the exporter
buying back a certain amount of the product 31
32. Given the inherent risks of international
trade, government institutions and the private
sector offer various forms of export credit,
export finance, and guarantee programs to
reduce risk and stimulate foreign trade.
Three prominent agencies provide these
services in the United States:-
■■ The Export-Import Bank of the United
States.
■■ The Private Export Funding Corporation
■■ The Overseas Private Investment
Corporation. 32
33. The Export-Import Bank (Ex-Im Bank) was
established in 1934 with the original goal of
facilitating Soviet–American trade.
Today, its missions are to finance and
facilitate the export of American products
and services and to maintain the
competitiveness of American companies in
overseas markets.
It operates as an independent agency of the
U.S. government and, as such, carries the full
faith and credit of the United States.
33
34. The Private Export Funding Corporation
(PEFCO) is a private corporation owned by a
consortium of commercial banks and
industrial companies. In cooperation with the
Ex-Im Bank, PEFCO provides medium- and
long-term fixed rate financing to importers.
The Ex-Im Bank guarantees all export loans
made by PEFCO.
Most PEFCO loans are made to finance large
projects, such as aircraft and power
generation equipment, so they tend to have
relatively long terms (sometimes as long as
34
35. The Overseas Private Investment Corporation
(OPIC) was formed in 1971 as a self-
sustaining federal agency responsible for
insuring direct U.S. investments in foreign
countries against the risks of currency
inconvertibility, expropriation, and other
political risks.
Through the direct loan or guaranty program,
OPIC will provide medium- to long-term
financing to U.S. investors undertaking an
overseas venture.
35
36. In addition to general insurance and finance
programs, OPIC offers specific types of
coverage for exporters bidding on or
performing foreign contracts.
American contractors can insure themselves
against contractual disputes and even against
the wrongful calling of standby letters of
credit.
36
37. ■ The common methods of payment for
international trade are (1) prepayment (before
products are sent), (2) letters of credit, (3)
drafts, (4) consignment, and (5) open
accounts.
■The most popular methods of financing
international trade are (1) accounts receivable
financing, (2) factoring, (3) letters of credit,
(4) banker’s. acceptances, (5) medium-term
capital goods financing (forfeiting), and (6)
countertrade.
37
38. The major agencies that facilitate
international trade with export insurance
and/or loan programs are:-
(1) the Export-Import Bank of the United
States,
(2) the Private Export Funding Corporation,
and
(3) the Overseas Private Investment
Corporation.
38
39. 1. Explain why so many international
transactions require international trade credit
facilitated by commercial banks.?
2. Explain the difference in the risk to the
exporter between accounts receivable
financing and factoring.?
3. Explain how the Export-Import Bank of the
United States can encourage U.S. firms to
export their products to less developed
countries where there is political risk.
39