This preview has intentionally blurred parts. Sign up to view the full document

View Full Document

Unformatted Document Excerpt

Chapter 19 Financing International Trade Lecture Outline Payment Methods for International Trade Prepayment Letters of Credit Drafts Consignment Open Account Trade Finance Methods Accounts Receivable Financing Factoring Letters of Credit Bankers Acceptances Working Capital Financing Medium-Term Capital Goods Financing (Forfaiting) Countertrade Agencies that Motivate International Trade Export-Import Bank of the U.S. Private Export Funding Corporation (PEFCO) Overseas Private Investment Corporation (OPIC) 49 50 International Financial Management Chapter Theme This chapter first suggests why international trade can be difficult. Then, it explains the various ways in which banking institutions can facilitate international trade by resolving problems faced by the exporter and importer. Topics to Stimulate Class Discussion 1. Assume that you receive a call from an old friend who has set up a computer parts store. He says that he plans to begin exporting these parts soon. What potential complications should he consider? 2. Why do exporters sometimes sell off their bankers acceptances? Would they be better off obtaining a short-term loan instead? What information is necessary to answer this question? 3. What is the common role of a banking institution in international trade besides financing? POINT/COUNTER-POINT: Do Agencies that Facilitate International Trade Prevent Free Trade? POINT: Yes. The Export-Import Bank of the U.S. provides many programs to help U.S. exporters conduct international trade. The government is essentially subsidizing the exports. Governments in other countries have various programs as well. Thus, some countries may have a trade advantage because their exporters are subsidized in various ways. These subsidies distort the notion of free trade. COUNTER-POINT: No. It is natural for any government to facilitate exporting for relatively inexperienced exporting firms. All governments provide a variety of services for their firms, including public services, and tax breaks for producing products that are ultimately exported. There is a difference between facilitating the exporting process and versus protecting an industry from foreign competition. The protection of an industry violates the notion of free trade, but facilitating the exporting process does not. WHO IS CORRECT? Use InfoTrac or some other search engine to learn more about this issue. Which argument do you support? Offer your own opinion on this issue. ANSWER: This issue will lead to many conflicting answers. Students will vary in what they perceive as free trade. Is it appropriate for a country to promote free trade while it indirectly subsidizes some firms that export products? Every country could be criticized for subsidizing its exporters in some way. There is no perfect answer but students should realize that governments subsidize firms but simultaneously complain if other governments use a similar strategy. Chapter 19: Financing International Trade 51 Answers to End of Chapter Questions... View Full Document

End of Preview

Sign up now to access the rest of the document