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Financing the International Trade Export-Import Financing

Functions of Financing the trade: Managing the risk of completion of the transaction. Protection against foreign exchange rate risk. A measure of financing the transaction.

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Financing the International Trade Export-Import Financing

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  1. Functions of Financing the trade: Managing the risk of completion of the transaction. Protection against foreign exchange rate risk. A measure of financing the transaction. Solve the dilemma of seller maintaining the legal right to title until paid & buyer reluctant to pay until receiving the merchandise . Financing the International Trade Export-Import Financing MENU

  2. Types and Mechanisms of Financing: Letter of Credit (L/C):Issued by a importer bank at the request of an importer. Importer bank promises to pay the exporter upon receiving of required document specified in L/C. Types of L/C: Irrevocable (can not be canceled without consent of all parties) v.s. Revocable (can be canceled or amended before payment). Financing the International Trade Export-Import Financing (con...) MENU

  3. Confirmed (both banks of importer and exporter have obligated to pay) v.s. Unconfirmed (only obligation of issuing banks). Revolving (valid for more than one transaction) v.s. non-revolving (only good for one transaction). Cumulative revolving (amount that is not used can be added together) v.s. non-cumulative (amount which is not used can not add together). Issuers of L/C: L/Cs can be issued by foreign bank and confirmed by local bank or confirmed by third party. Export-Import Financing (con...) MENU

  4. It can be issued only by local bank or issued by foreign bank with no confirmation from domestic bank. Draft: Bill of Exchange (B/E): Order written by an exporter to be paid a specific amount of money by the importer or importer bank at a specific period of time. Party who initiates the draft is called Drawer or Originator (Usually exporter). Party the draft being written for is Drawee (usually importer). If drawee is buyer, draft is called trade draft, if it is bank, it is called bank draft. Export-Import Financing (con...) MENU

  5. Conditions for Draft: It must be in writing and signed by a drawer. It must contain an unconditional promise to pay a definite sum of money to drawer at a specific time. It could be written to order or bearer with receiving bank or person being a holder in due course. Types of draft:Sight Draft, Time Draft, Clean Draft, Documentary Draft Bill of Lading (B/L): Composed of merchandise receipt, contract (obligation of career), documents of title Export-Import Financing (con...) MENU

  6. Types of B/L: Straight B/L: Carrier delivers the merchandise to the designated person when paid in advance or Order B/L; grant the title to the specified person. Clean B/L: Merchandise received by the carrier must be in a good condition v.s Foul B/L merchandise could have a margin of damage. Other Financing related Documents: Commercial Invoice: Price , financial terms, shipping condition such as FOB, FAS, C&F and CIF. Export-Import Financing (con...) MENU

  7. Public and Private Financing agencies: Export Credit Insurance: Credit for export and insurance for default importer. Foreign Credit Insurance Association (FCIA) Export Import Bank Private Export Funding Corporation (PEFCO) Overseas Private Insurance Corporation. (OPIC) www.freetradeat10.com www.mexonline.com/nafta.htm http://www.usmcoc.org/naftafor.html Export-Import Financing (con...) MENU

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