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International Financial Management Abridged 10 Edition: by Jeff Madura
International Financial Management Abridged 10 Edition: by Jeff Madura
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19
Financing International Trade
Chapter Objectives
This chapter will:
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Payment Methods for International
Trade
1. Prepayment
a. Same as cash in advance
e. In effect, the bank is substituting its credit for that of the buyer.
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Payment Methods for International
Trade
3. Drafts (or bill of exchange)
a. An unconditional promise drawn by one party, usually the
exporter,
b. instructing the buyer to pay the face amount of the draft upon
presentation.
d. draft affords the exporter less protection than an L/C because the
banks are not obligated to honor payments on the buyer’s behalf.
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Payment Methods for International
Trade
4. Consignment
a. exporter ships the goods to the importer while still retaining
actual title to the merchandise.
b. The importer has access to the inventory but does not have to
pay for the goods until they have been sold to a third party.
c. method is used when the seller and buyer have mutual trust and a
great deal of experience with each other.
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Trade Finance Methods
2. Factoring Receivables
the exporter sells the accounts receivable without recourse.
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Trade Finance Methods
b. Use of Drafts
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Exhibit 19.3 Documentary Credit Procedure
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as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.
Trade Finance Methods
4. Banker’s Acceptance
Bill of exchange, or time draft, drawn on and accepted by a bank. It
is the accepting bank’s obligation to pay the holder of the draft
at maturity.
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Exhibit 19.4 Banker’s Acceptance
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Trade Finance Methods
7. Countertrade
a. Denotes all types of foreign trade transactions in which the sale
of goods to one country is linked to the purchase or exchange of
goods from that same country.
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Exhibit 19.5
Life Cycle of a
Typical
Banker’s
Acceptance
(B/A)
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Agencies That Motivate International
Trade
1. Export-Import Bank of the United States
a. Established in 1934 with the original goal of facilitating Soviet-
American trade.
b. Its mission today is to finance and facilitate the export of
American goods and services
c. Maintain the competitiveness of American companies in
overseas markets.
d. Programs that are classified as
1.) guarantees
2.) loans
3.) bank insurance
4.) export credit insurance.
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Agencies That Motivate International
Trade
2. Private Export Funding Co. (PEFCO)
a. Is owned by a consortium of commercial banks and
industrial companies.
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