1. Preparation of international trade transactions
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2. The realization of some foreign trade transaction consists of the following basic stages: 1. Preparation to the conclusion of an agreement (treaty) 2. Conclusion of an agreement (treaty) on the certain terms 3. Execution of agreement: preparation of goods to delivery, supplying of the goods to the customer, receiving of goods and payment for goods

3. The most essential part of realization of foreign trade transaction is the stage of preparation to the conclusion of an agreement.
This stage includes search and choice of suitable partner-contractor, establishment of contacts with potential sellers or customers, conduct of preliminary negotiations.

4. Defining possible contractors, an exporter or importer proceed to the establishment of contacts with them.

5. In the process of preparation of foreign trade transaction the different ways of establishment of contacts can be used with potential contractors: advertisement campaign in mass medias, direction of catalogues to potential customers′ addresses, boulevards (avenues), commercial proposals and etc.

6. However the most importance in practice of international trade has the methods of establishment of contacts with potential partners on the basis of direct relations. The partners can chose one of next variants:

7. - to direct commercial proposals (offer) directly to one or a few possible customers; - to accept and confirm the order of customer; - to direct to the customer commercial proposal in reply to his inquiry with pointing of the future agreement′s concrete terms; - to take part in auctions by presentation of tender to auction′s organizers;

8. - to direct to the possible customer a business letter with information about intentions to enter into negotiations concerning the conclusion of a concrete transaction; - to direct agreement′s form to the known customer as a result of coordination of agreement′s terms on phone, by the teletype, telex, or on the basis of preceding agreements.
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9. For IWS was Information about:
Transaction .
Contract (prices, term of payment)
Exchange quotations.
Auctions’ costs.
Bringing prices over during realization of settling of export and imported prices. (The solution of the task)

10. International Trade Transactions
Learning Objectives
Learn how international trade alters both the supply chain and general value chain of the domestic firm, thereby beginning the globalization process in the trade phase
Consider what the key elements of an import or export transaction are in business
Discover how the three key documents in import/export – letter of credit, the draft, and bill of lading – combine to finance both the transaction and manage its risk

11. International Trade Transactions
Trade financing shares a number of common characteristics with traditional value chain activities conducted by all firms
All companies must search out suppliers for goods and services
Must determine if supplier can provide products at required specifications and quality
All must be at an acceptable price and delivered in a timely manner .

12. International Trade Transactions
Financing Trade: The Flow of Goods and the Flow of Funds
Domestic Supplier
(US)
Domestic Buyer
Canadian Buyer
(Calgary, Alberta)
Mexican Supplier
(Monterey, MX)
Trident Corp.
(Los Angeles)
Goods & Services Flow from Supplier to Trident to Buyer
Goods & Services Flow from Supplier to Trident to Buyer
US$
Mexican Pesos
US$
Canadian $

13. International TradeTransactions
Trident as an Exporter
Affiliated Party
присоединённая
Unaffiliated Known
Party
Unaffiliated Unknown
Самостоятельная
Importer is…
This is a new customer which Trident has no historical business relationship with
Requires:
A contract
Protection against non-payment
This is a Long-term customer with which there is an established relationship of trust and performance
Requires:
A contract
Possible protection against non-payment
This is a foreign subsidiary of Trident, a business unit of Trident Corporation
Requires:
No contract
No protection against non-payment .

14. Elements of an Import/Export Transaction
Each individual export sales transaction covers three basic elements: description of goods, prices, and documents regarding shipping and delivery instructions
Contracts – an import/export transaction is by definition a contractual exchange between parties in two countries that may have different legal systems, monies (сумма денег), languages, religions, or units of measure (единицы измерения)
Prices – price quotations can be a major source of confusion; terms in the contract should conform to published catalogues

15. Elements of an Import/Export Transaction
Documents – documentation covers a variety of issues of particular importance; these typically include
Bills of lading (B/L) – is issued to the exporter by a common carrier transporting the merchandise
Commercial invoice – is issued by the exporter and contains a precise description of the merchandise. Unit prices, financial terms of sale, and amount due from the importer are indicated such as “FOB” (free on board), “FAS” (free alongside), “CFR” (cost & freight), or “CIF” (cost, insurance, freight)

16. FAS – FREE ALONGSIDE SHIP (… named port of shipment)
The Seller delivers the goods to the origin port. From that point, the Buyer bears all costs and risks of loss or damage.
FOB – FREE ON BOARD (… named port of shipment)
The Seller delivers the goods on board the ship and clears the goods for export.
From that point, the Buyer bears all costs and risks of loss or damage.
CFR – COST AND FREIGHT (… named port of destination)
The Seller clears the goods for export and pays the costs of moving the goods to destination. The Buyer bears all risks of loss or damage.
CIF – COST INSURANCE AND FREIGHT (… named port of destination)
The Seller clears the goods for export and pays the costs of moving the goods to the port of destination. The Buyer bears all risks of loss or damage. The Seller, however, purchases the cargo insurance.

17. Elements of an Import/Export Transaction
Insurance documents – must be as specified in the contract of sale and must be issued by insurance companies or their agents. Insurance must be of types and for risks specified in the letter of credit
Consular invoices – issued in the exporting country by the consulate of the importing country to provide customs information and statistics for that country and to help prevent false declarations of value
Packing lists – may be required so that the contents of containers can be identified, either for customs purposes or for importer identification of the contents of separate containers

18. Elements of an Import/Export Transaction
Shipping deadline – most importers insist on a specified deadline or time interval by which the shipment will be made
Payment instructions – which of the parties, exporter or importer, is to pay such charges as freight, insurance, import duties, handling fees, taxes, etc., must be carefully specified in the sales contract
Packaging and marking – depending on the nature of the goods, proper packaging may be critical to preserving and protecting items being shipped

19. Elements of an Import/Export Transaction
Warranties, Guarantees, and inspection – assurances regarding the performance or qualities demonstrated by the goods from the exporter may also be included in the sales contract
Included in documents may be certificates of analysis required to ascertain that certain specifications such as weight, purity, or sanitation have been met

20. International Trade Risks
The Trade Transaction Timeline
Time and Events
Price
Quote
request
Export
contract
signed
Goods
are
shipped
Documents
are
accepted
Goods
are
received
Cash
settlement
of the
transaction
Negotiation
Backlog
Documents are
presented
Financing Period

21. Key Documents
The three key documents that have been crafted over time to protect all parties involved in a trade transaction are the letter of credit, draft, and bill of lading
These serve to determine who bears the financial loss if one of the parties defaults at any time
Risk of non-completion – once both parties agree to terms, they each want assurance that other party will complete its portion of the transaction
Financing the trade – some is required typically so parties must secure financing through a bank which acts as an intermediary utilizing the three key documents

22. Key Documents
Letter of Credit (L/C) is a bank’s conditional promise to pay issued by a bank at the request of an importer in which the bank promises to pay an exporter upon presentation of documents specified in the L/C
The essence of an L/C is the promise of the issuing bank to pay against specified documents, which means that certain elements must be present for the bank
Issuing bank must receive a fee for issuing L/C
Bank’s L/C must contain specified maturity date
Bank’s commitment must have stated maximum amount
Bank’s obligation must arise only on presentation of specific documents and bank cannot be called on for disputed items
Bank’s customer must have unqualified obligation to reimburse bank on same condition of bank’s payment

23. Key Documents Commercial L/C’s are classified as follows
Irrevocable Vs. Revocable – irrevocable letters of credit are non-cancelable while its opposite can be cancelled at any time
Confirmed Vs. Unconfirmed – An L/C issued by one bank can be confirmed by another bank
Advantages of L/Cs are that it reduces risk of default and a confirmed L/C helps secure financing
Disadvantages of L/Cs are the fees charged and that the L/C reduces the available credit of the importer

24. Beneficiary (exporter)
Lines of Credit
Beneficiary (exporter)
Applicant (importer)
Issuing Bank
The relationship between the issuing bank and the exporter is governed by the terms of the letter of credit, issued by that bank
The relationship between the importer and the issuing bank is governed by the terms of the application and agreement for the letter of credit
The relationship between the importer and the exporter is governed by the sales contract

25. Key Documents
A draft, sometimes called a bill of exchange (B/E), is the instrument normally used in international commerce to effect payment
It is a written order by an exporter instructing an importer or its agent to pay a specified amount at a specified time
The party initiating the draft is the maker, drawer, or originator while the counterpart is the drawee
In a commercial transaction where the buyer is the drawee it is a trade draft, or the buyer’s bank when it is called a bank draft

26. Key Documents
If properly drawn, drafts can become negotiable instruments
As such they provide a convenient instrument for financing the international movement of merchandise
To become a negotiable instrument, there are four requirements
Must be written and signed by buyer
Must contain unconditional promise to pay
Must be payable on demand or at a fixed date
Must be payable to bearer

27. Key Documents Types of drafts include
Sight drafts which is payable on presentation to the drawee
Time drafts, also called usance draft, allows a delay in payment. It is presented to the drawee who accepts it with a promise to pay at some later date
When a time draft is drawn on a bank, it becomes a banker’s acceptance
When drawn on a business firm it becomes a trade acceptance

28. Key Documents Banker’s Acceptance
When a draft is accepted by a bank, it becomes a banker’s acceptance
Example: Acceptance of $100,000 for exporter
Face amount of acceptance $100,000
Less 1.5% p.a. commission for 6 months
Amount received by exporter in 6 months $ 99,250
Less 7% p.a. discount rate for 6 months ,500
Amount received by exporter at once $95,750
Exporter may discount the acceptance note in order to receive the funds up-front

29. Key Documents
Bill of Lading (B/L) is issued to the exporter by a common carrier transporting the merchandise
It serves the purpose of being a receipt, a contract and a document of title
As a receipt the B/L indicates that the carrier has received the merchandise
As a contract the B/L indicates the obligation of the carrier to provide certain transportation
As a document of title, the B/L is used to obtain payment or written promise of payment before the merchandise is released to the importer

30. Key Documents Characteristics of the Bill of Lading
A straight B/L provides that the carrier deliver the merchandise to the designated consignee only
An order B/L directs the carrier to deliver the goods to the order of a designated party, usually the shipper
A B/L is usually made payable to the order of the exporter

31. Documentation in Typical Trade Transaction
Example: Assume Trident receives order from Canadian buyer; Trident will export financed under L/C requiring a bill of lading with exporter collecting a time draft accepted by Canadian buyer’s bank
The Canadian buyer places order with Trident
Trident agrees to ship under L/C
Canadian buyer applies to bank (Northland Bank) for L/C to be issued in favor of Trident for merchandise
Northland Bank issues L/C in favor of Trident and sends it to Southland Bank (Trident’s bank)

32. Documentation in Typical Trade Transaction
Trident ships the goods to the Canadian buyer
Trident prepares a time draft and presents it to Southland Bank. The draft is drawn on Northland Bank with required documents including bill of lading
Trident endorses the order bill of lading in blank so that title to goods goes with holder of documents – Southland Bank
Southland Bank presents draft and documents to Northland Bank for acceptance, Northland accepts and promises to pay draft at maturity – 60 days

33. Documentation in Typical Trade Transaction
Northland Bank returns accepted draft to Southland Bank; Southland Bank could ask for discounted draft receiving funds today
Southland Bank, now having a banker’s acceptance, may sell the acceptance in the open market or it may hold the acceptance in its own portfolio
If Southland Bank had kept the acceptance, it would transfer the proceeds less commission to Trident

34. Documentation in Typical Trade Transaction
Northland Bank notifies Canadian buyer of arrival of documents; Canadian buyer signs note to pay Northern Bank for the merchandise in 60 days
After 60 days, Northland Bank receives payment from Canadian buyer
On same day, holder of matured acceptance presents it for payment and receives it face value; it may be presented at Northland Bank or returned to Southland Bank for collection through normal bank channels
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35. Steps in Typical Trade Transaction
1. Canadian Buyer orders goods
Northland Bank
3. Canadian buyer arranges L/C with bank
Trident
(exporter)
Canadian Buyer
(importer)
2. Trident agrees to fill order
5. Southland advises Trident of the L/C
6. Trident ships goods to Canadian buyer
11. Southland pays Trident
7. Trident presents draft & documents to its bank
12. Northland obtains Canadian buyer’s note and releases shipment
13. Canadian buyer pays bank
8. Southland presents draft & documents to Northland
Southland Bank
4. Northland Bank sends L/C to Southland Bank
9. Northland accepts draft, promising to pay in 60 days and returns acceptance to Southland
Public
Investor
10. Southland sells acceptance to investor
14. Investor presents acceptance for payment
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36. Government Programs to Help Finance Exports
Export Credit Insurance
Provides assurance to the exporter or the exporter’s bank that an insurer will pay should the foreign customer default
In the US the Foreign Credit Insurance Association (FCIA) provides this type of insurance
Export-Import Bank
Known as the Eximbank, it facilitates the financing of US exports through various loan guarantee and insurance programs
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37. Summary of Learning Objectives
International trade takes place between three categories of relationships: unaffiliated unknown parties, unaffiliated known parties, and affiliated parties
Trade transactions between affiliated parties typically do not require contractual arrangements or external financing. Trade transactions between unaffiliated parties typically do as well as some type of external financing such as letters of credit
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38. Summary of Learning Objectives
Over many years, established procedures have arisen to finance international trade. The basic procedure rests on the interrelationship between three key documents, the L/C, the draft, and the bill of lading
Variations in each type of the three documents provide a variety of ways to accommodate any type of transaction
In the simplest transaction, in which all three documents are used, an importer applies for and receives a L/C from its bank
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39. Summary of Learning Objectives
In the L/C, the bank substitutes its credit for that of the importer and promises to pay if certain documents are submitted to the bank. The exporter may now rely on the promise of the bank rather than that of the importer
The exporter typically ships on an order bill of lading, attaches the bill of lading to a draft ordering payment from the importer’s bank and presents these documents, plus any additional documents, through its own bank to the importer’s bank
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40. Summary of Learning Objectives
If the documents are in order, the importer’s bank either pays the draft (sight draft) or accepts the draft (time draft). In the latter case, payment is at a future date. At this step the importer’s bank acquires title to the merchandise through the bill of lading and releases it to the importer against a promise to pay
If a sight draft is used, the exporter is paid at once, if a time draft is used the exporter receives the accepted draft, now a banker’s acceptance, back from the bank and holds it until maturity or sells it at a discount
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41. Summary of Learning Objectives
Total costs of an exporter entering a foreign market include the transaction costs of trade financing, import/export duties and the costs of foreign market penetration which includes distribution, inventory and transportation expenses
Export credit insurance provides assurance to exporters that insurance will pay should importer default
In the US, the Foreign Credit Insurance Association provides this insurance
The Eximbank is an independent agency established to stimulate and facilitate the foreign trade of the US
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