CH13sguide - 13 FinancingForeignTrade ChapterObjectives 1....

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Chapter Objectives 1. To describe the three important documents in foreign trade and reasons for documentation. 2. To list 14 steps necessary to complete a typical international trade. 3. To define countertrade and describe the specific forms it takes. 4. To discuss the three important payment terms of export transactions. 5. To describe the different methods of private-sector trade financing. 6. To identify the different methods of export financing and insurance programs sponsored by the government. Chapter Outline I. Documents Involved in Foreign Trade A. The basic objectives of documentation: i. Reduce noncompletion risk. Due to this risk, exporters want to keep title to the goods until they are paid and importers want to wait to pay until they have the goods. ii. Reduce foreign exchange risk. iii. All foreign trade involves a time lag, so the documentation can free up funds and help in the financing. Financing Foreign Trade      167 13 Financing Foreign Trade
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B. A draft or bill of exchange – an order written by an exporter that requires an importer to pay a specified amount of money at a specified time. i. There are three parties to a draft: 1. The drawer: the person or business issuing the draft. 2. The drawee: the person or business against whom the draft is drawn. 3. The payee: the person or business to whom the drawee will eventually pay the funds. ii. Drafts are only negotiable if they meet four conditions: 1. They must be in writing and signed by the drawer-exporter. 2. They must contain an unconditional promise or order to pay an exact amount of money. 3. They must be payable on sight or at a specified time. 4. They must be made out to order or to bearer. iii. Drafts are used for a number of reasons: 1. They provide written evidence of obligations in a comprehensive form. 2. They allow both the exporter and the importer to reduce the cost of financing and to divide the remaining cost equitably. 3. They are negotiable and unconditional, i.e. drafts are not subject to disputes that may occur between the parties involved. iv. There are two types of drafts: sight (demand) and time (usance). 1. Sight drafts are payable upon demand to the drawee- importer. 2. Time drafts are payable a specified number of days after presentation to the drawee. C. A bill of lading – a shipping document issued to an exporting firm or its bank by a common carrier that transports the goods. i. It serves as a receipt, contract, and document of title. 1. As a receipt, it indicates that the carrier has received the specified goods. 2. As a contract, it is evidence that the carrier is obliged to deliver the goods to the importer in exchange for certain charges.
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This note was uploaded on 01/29/2012 for the course ECONOMICS 3400 taught by Professor Kroger during the Spring '11 term at Georgia State University, Atlanta.

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CH13sguide - 13 FinancingForeignTrade ChapterObjectives 1....

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