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Lecture Multinational financial management: Lecture 25 - Dr. Umara Noreen

After completing this chapter, students will be able to: To describe the methods of payment for international trade; to explain common trade finance methods; and to describe the major agencies that facilitate international trade with export insurance and/or loan programs. | Financing International Trade 25 Lecture Chapter Objectives To describe the methods of payment for international trade; To explain common trade finance methods; and To describe the major agencies that facilitate international trade with export insurance and/or loan programs. Payment Methods for International Trade In any international trade transaction, credit is provided by either the supplier (exporter), the buyer (importer), one or more financial institutions, or any combination of the above. The form of credit whereby the supplier funds the entire trade cycle is known as supplier credit. Method : Prepayments The goods will not be shipped until the buyer has paid the seller. Time of payment : Before shipment Goods available to buyers : After payment Risk to exporter : None Risk to importer : Relies completely on exporter to ship goods as ordered Payment Methods for International Trade Method : Letters of credit (L/C) These are issued by a bank on behalf of the importer . | Financing International Trade 25 Lecture Chapter Objectives To describe the methods of payment for international trade; To explain common trade finance methods; and To describe the major agencies that facilitate international trade with export insurance and/or loan programs. Payment Methods for International Trade In any international trade transaction, credit is provided by either the supplier (exporter), the buyer (importer), one or more financial institutions, or any combination of the above. The form of credit whereby the supplier funds the entire trade cycle is known as supplier credit. Method : Prepayments The goods will not be shipped until the buyer has paid the seller. Time of payment : Before shipment Goods available to buyers : After payment Risk to exporter : None Risk to importer : Relies completely on exporter to ship goods as ordered Payment Methods for International Trade Method : Letters of credit (L/C) These are issued by a bank on behalf of the importer promising to pay the exporter upon presentation of the shipping documents. Time of payment : When shipment is made Goods available to buyers : After payment Risk to exporter : Very little or none Risk to importer : Relies on exporter to ship goods as described in documents Payment Methods for International Trade Method : Drafts (Bills of Exchange) These are unconditional promises drawn by the exporter instructing the buyer to pay the face amount of the drafts. Banks on both ends usually act as intermediaries in the processing of shipping documents and the collection of payment. In banking terminology, the transactions are known as documentary collections. Payment Methods for International Trade Time of payment : On presentation of draft Goods available to buyers : After payment Risk to exporter : Disposal of unpaid goods Risk to importer : Relies on exporter to ship goods as described in documents Payment Methods for International Trade Method : Drafts (Bills of Exchange) Sight drafts .