Case Study: XYZ Corporation’s International Transaction

Background:
XYZ Corporation, a medium-sized manufacturing company based in Country A, specializes in
producing high-quality electronic components. Recently, they have received an order from a
client in Country B for a large quantity of their products.

Transaction Details:
Buyer: ABC Electronics, a prominent electronics retailer based in Country B.
Seller: XYZ Corporation, based in Country A.
Product: Electronic components for consumer electronics.
Order Quantity: 10,000 units.
Total Value: $100,000 USD.
Shipping Terms: FOB (Free on Board) from XYZ Corporation's warehouse in Country A.
Payment Terms: Negotiable.

Payment Options Considered:

Cash in Advance: XYZ Corporation demands full payment before shipping the products.
Letter of Credit (L/C): ABC Electronics opens an irrevocable letter of credit with their bank in
favor of XYZ Corporation.
Documentary Collection: XYZ Corporation ships the goods and presents shipping documents
to their bank, which forwards them to ABC Electronics' bank for payment collection.
Open Account: XYZ Corporation ships the goods with no guarantee of payment and relies on
ABC Electronics to pay at a later agreed-upon date.

Challenges:
Currency Fluctuations: Country A's currency has been volatile recently, which could affect the
final payment amount.
Credit Risk: XYZ Corporation is concerned about ABC Electronics' creditworthiness and
ability to pay on time.
Legal and Regulatory Compliance: Both countries have different laws and regulations
governing international trade, which must be adhered to.
Discussion Questions:
1. Which payment option would you recommend for XYZ Corporation?
2. What are the advantages and disadvantages of each payment option?
3. How can XYZ Corporation mitigate the risks associated with currency fluctuations and
credit risk?
4. How can XYZ Corporation negotiate favorable terms with ABC Electronics while
maintaining a good business relationship?