Topic 6 Trade Theory, Practices and Financing in Crises for MNCs

Trusting bank s promise to pay 3 a typical

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Unformatted text preview: ompany. Serves as proof of shipment, receipt, and document of title. The Use of a Third Party: Export procedure by a US MNC 1. Importer Obtains Bank s Promise to Pay on Importers Behalf Korean Importer Bank 6. Importer Pays Bank 5. Bank Gives Merchandise to Importer 2.Bank Promises Exporter to pay on Behalf of Importer American Exporter 4. Bank Pays Exporter 3. Exporter Ships to the Bank. trusting Bank s Promise to Pay 3 A Typical International Trade Transaction 1. Importer Orders Goods 2. Exporter Agrees to Fill Order American Exporter 10 and 11 Exporter Sells Draft to Bank 5. SB of Phila Informs Exporter of LOC 3. Importer Arranges for LOC Korean Importer 6. Goods Shipped to France 12. Bank Tells Importer Documents 14. SB Phila Presents Matured Arrive Draft and Gets Payment 7. Exporter Presents Draft to Bank Seoul Bank, Philadelphia Collapses in trade and trade finance during the global financial crisis of 2008-9 13. Importer Pays Bank Seoul Bank, Seoul, Korea 8. SB Phila Presents Draft to SB Korea 9. SB Phila Returns Accepted Draft 4. SB Korea Sends LOC to SB Phila 10 principles for intervention to support trade finance in the current crisis •  •  •  •  •  •  •  •  •  •  Source: The Role of Financing in International Trade during Good Times and Bad, and F. de Nocola, The Regional Economist, January 2012. 1. Targeted interventions 2. Holistic response: trade, finance and the economy 3. Integration with existing institutions 4. Collective action 5. Addressing both risk and liquidity 6. Target emerging markets but recognise the importance of developed market banks 7. Promoting inter-firm credit 8. Level playing field in terms of risk weight 9. Improving transparency 10. Avoiding moral hazards and wasteful subsidies by S. Contessi 4...
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