* The Trade Relationship
* The Mechanism of Import & Export
* Benefits of the system
* Key Documents: Letter of Credit (L/C), Draft (B/E) & Bill of lading (B/L) * Documentation in a typical trade transaction
* Government Programs to Help Finance Exports
The trade relationship
All companies must search out suppliers for the many goods & services required as inputs to their own goods production or service prevision processes. They must determine whether each potential supplier is capable for producing the product to required quality specifications, producing and delivering in a timely and reliable manner Three categories for trade relationship
* Unaffiliated unknown party. : A new customer with which that exporter has no historical business relationship. * Unaffiliated known party. : A long-term customer with which there is an established relationship of trust & performance. * Affiliated party : A foreign subsidiary or affiliate of the exporter. * The Mechanism of Import & Export
As a imprter perferenece the exporter ships the good and the exporter pays after goods received As exporter perferenece the importer paying for goods and exporter ships goods after paid The bank as the exporter and importer intermediary
Importer obtains bank’s promise to pay on importer’s behalf. Bank promises the exporter to pay on behalf of the importer. Exporter ships “to the bank”trusting bank’s promise.
Banks pays the exporter.
Bank “gives” merchandise to the importer.
Benefits of the system
* The tree key documents (L/C Letter of Credit , Bill of lading , Draft) constitute a system developed and modified over centuries to protect both importer and exporter from the risk of noncompletion and foreign exchange risk as well as to provide means of financing. Protect against risk of noncompletion
Protect against forign exchange risk
Finance the trade