Financing Trade

1
Chapter 19

• Financing Trade

2
Terms of Payment for International Trade

• 1. Prepayment
• Who bears the risk?
• 2. Open Account
• Who bears the risk?

3
Letter of Credit

• What is a letter of credit (LC)?
• 3 parties to LC
• Issuing bank
• Beneficiary
• Applicant

4
Letter of Credit

• Elements of a an LC
• Bank charges a fee
• Has an expiration date
• States maximum commitment
• Certain documentation required
• Importer is obligated to reimburse bank

5
Letter of Credit

• Types of LCs
• Confirmed versus Unconfirmed
• Revolving versus Nonrevolving
• Revocable versus Irrevocable

6
Drafts

• What is a draft?
• Time draft
• Sight draft

7
Bill of Lading

• What is a bill of lading?
• It functions as
• a receipt
• a contract
• a document of title

8
Trade Finance Techniques

• Accounts receivable financing
• Factoring
• Bankers Acceptance
• Forfaiting

9
Trade Finance Techniques

• Countertrade
• Barter
• Buyback or compensation agreement

10
Summary

• International trade introduces additional risk
  into sales transactions
• A letter of credit helps reduce the risk and
  facilitate trade
• Creative solutions are often necessary to
  facilitate international trade