Financing the International Trade Export-Import Financing n Functions of Financing the trade:  Managing the risk of completion of the transaction.  Protection against foreign exchange rate risk.  A measure of financing the transaction.  Solve the dilemma of seller maintaining the legal right to title until paid & buyer reluctant to pay until receiving the merchandise. MENU

Financing the International Trade Export-Import Financing (con...) n Types and Mechanisms of Financing:  Letter of Credit (L/C):Issued by a importer bank at the request of an importer. Importer bank promises to pay the exporter upon receiving of required document specified in L/C.  Types of L/C:  Irrevocable (can not be canceled without consent of all parties) v.s. Revocable (can be canceled or amended before payment). MENU

Export-Import Financing (con...)  Confirmed (both banks of importer and exporter have obligated to pay) v.s. Unconfirmed (only obligation of issuing banks).  Revolving (valid for more than one transaction) v.s. non- revolving (only good for one transaction).  Cumulative revolving (amount that is not used can be added together) v.s. non-cumulative (amount which is not used can not add together).  Issuers of L/C: L/Cs can be issued by foreign bank and confirmed by local bank or confirmed by third party. MENU

Export-Import Financing (con...)  It can be issued only by local bank or issued by foreign bank with no confirmation from domestic bank.  Draft: Bill of Exchange (B/E): Order written by an exporter to be paid a specific amount of money by the importer or importer bank at a specific period of time.  Party who initiates the draft is called Drawer or Originator (Usually exporter).  Party the draft being written for is Drawee (usually importer). If drawee is buyer, draft is called trade draft, if it is bank, it is called bank draft. MENU

Export-Import Financing (con...)  Conditions for Draft:  It must be in writing and signed by a drawer.  It must contain an unconditional promise to pay a definite sum of money to drawer at a specific time.  It could be written to order or bearer with receiving bank or person being a holder in due course.  Types of draft: Sight Draft, Time Draft, Clean Draft, Documentary Draft  Bill of Lading (B/L): Composed of merchandise receipt, contract (obligation of career), documents of title MENU

Export-Import Financing (con...)  Types of B/L:  Straight B/L: Carrier delivers the merchandise to the designated person when paid in advance or Order B/L; grant the title to the specified person.  Clean B/L: Merchandise received by the carrier must be in a good condition v.s Foul B/L merchandise could have a margin of damage. Other Financing related Documents: Other Financing related Documents:  Commercial Invoice: Price, financial terms, shipping condition such as FOB, FAS, C&F and CIF. MENU

Export-Import Financing (con...)  Public and Private Financing agencies:  Export Credit Insurance: Credit for export and insurance for default importer. Export Credit Insurance Export Credit Insurance  Foreign Credit Insurance Association (FCIA) Foreign Credit Insurance Association (FCIA) Foreign Credit Insurance Association (FCIA)  Export Import Bank Export Import Bank Export Import Bank  Private Export Funding Corporation (PEFCO) Private Export Funding Corporation (PEFCO) Private Export Funding Corporation (PEFCO)  Overseas Private Insurance Corporation. (OPIC) Overseas Private Insurance Corporation. (OPIC) Overseas Private Insurance Corporation. (OPIC)    MENU

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