International Trade Finance

Governed by the uniform rules for demand guarantees

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Unformatted text preview: pletion of the contract Demand guarantee – secures performance of a nonmonetary obligation; a default device when performance is not satisfactory. Governed by the Uniform Rules for Demand Guarantees (ICC) § § UNIVERSITY OF ALBERTA Sources of trade finance Commercial Banks § Export Financing § Factoring and Forfaiting Buyer and Supplier Financing § Government Assistance § § UNIVERSITY OF ALBERTA Commercial banks Exchange of currency § Assist in financing exports Collection of foreign invoices, and letters of credit § Transfer of funds to other countries Can provide credit information on potential representatives or buyers overseas § § § UNIVERSITY OF ALBERTA Export financing § § Letters of credit (discussed in detail earlier) § Export credit insurance Government guarantee programs (discussed shortly) UNIVERSITY OF ALBERTA Factoring The discounting of foreign account receivables without a draft § The exporter transfers title to its account receivables to a factoring company at a discount Export factoring allows an exporter to sell on open account, by which goods are shipped without a guarantee of payment (such as a LOC) § § UNIVERSITY OF ALBERTA Forfaiting § § The selling at a discount of longer-term account receivables or the promissory notes of the foreign buyer It is a form of supplier credit in which the exporter turns over export receivables (usually guaranteed by a bank in the importer’s country), by selling them at a discount to a forfaiter § Usually agreed upon in advance before the conclusion of a sales contract, allowing the exporter to incorporate the discount costs into the selling price UNIVERSITY OF ALBERTA Buyer and supplier Financing Red Clause Advance – the seller may demand a partial payment under the LOC before presentation of documents, to allow for completion of production. The buyer is at risk for any advanced red clause payments; essentially these are unsecured loans from the buyer to the seller. § Transferable credit arrangement – suppliers accept assignment of a part of the LOC that the seller receives from the buyer in an export transaction. A LOC can be divided and transferred to numerous suppliers or the exporter in order to guarantee payment to them upon the payment of the underlying LOC (if agreed by the bank). Back-to-back LOC – seller makes arrangements with a 3rd party bank to take the LOC from the export transaction as collateral for a NEW letter of credit. The new LOC is issued in partial amounts to the suppliers of the seller. § § UNIVERSITY OF ALBERTA Government assistance programs § • • EXIMBANK “pre-export financing” assists US exporters in obtaining loans to produce or purchase goods or serv...
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This document was uploaded on 01/23/2014.

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