LS170:X Case STUDY

July 14, 2014

SERVE MARKETShost government’s requirementsREMAIN Competitivetest foreign marketsactual or prospective demand

FOB FactoryFASFOB Port of originCFR Foreign PortCIF Foreign Portdelivered at frontier (DAF)

FOB Factory

Supplier COST

Supplier COST

FAS

Supplier COST

FOB PORT OF ORIGIN

Supplier COST

CFR foreign port

Supplier COST

CIR foreign port

Supplier COST

*Delivered at frontier

OPEN ACCOUNT€$

1. Establish a contract

EXPORTER IMPORTER

EXPORTER’s BANK

IMPORTER’s BANK

€$

EXPORTER IMPORTER

EXPORTER’s BANK

IMPORTER’s BANK

€$

2-3. DOCUMENTS+EXPORTS are DELIVERED

EXPORTER IMPORTER

EXPORTER’s BANK

IMPORTER’s BANK

€$ 4. IMPORTER PAYS through channels

4. EXPORTER RECEIVES PAYMENT

LETTER OF CREDITEXPORTER IMPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

1. Establish a contract

EXPORTER IMPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

EXPORTER IMPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

2. Request for issuance

3. ISSUANCE

4. ADVICE of L/c ISSUANCE

5-6. COPY OF DOCUMENTS+ EXPORTS are DELIVERED

EXPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

7. negotiates L/c and submits req’d original documents8. PAYS L/C Amount less charges

9. Orig documents delivered

IMPORTER

DOCkS

EXPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

10. reimburses exporters bank

IMPORTER

11. Pays Bank12. Documents are released

DOCkS

EXPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

10. reimburses exporters bank

IMPORTER

11. Pays Bank12. Documents are released

13. BUYER receives goods

DOCUMENTARY DRAFT sigHt Draft or time draft

EXPORTER IMPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

1. Establish a contract

EXPORTER IMPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

EXPORTER IMPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

3-4. COPY OF DOCUMENTS+ EXPORTS are DELIVERED

5. submits documents+draft

EXPORTER IMPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

3-4. COPY OF DOCUMENTS+ EXPORTS are DELIVERED

5. submits documents+draft

6. SENDs Docs + Draft

7. Pays for the draft and charges

(sight); “accepts” (time)

EXPORTER IMPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

8. Documents are released

DOCkS

EXPORTER IMPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

8. Documents are released

9. BUYER receives goods

EXPORTER IMPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

8. Documents are released

9. BUYER receives goods

10. REmits payment (if sight)

11. CREDITS ACCOUNT OF SELLER

EXPORTER IMPORTER

NOMINATED BANK

ISSUING BANK BANK

€$

8. Documents are released

9. BUYER receives goods

10. REmits payment (if sight)

11. CREDITS ACCOUNT OF SELLER 12. Pays Bank

at maturity

13. REmits payment at maturity (if TIME)

14. CREDITS ACCOUNT OF SELLER, at maturity

State manufacturing: export pricing

HOW WOULD YOU CALCULATE

Deduct: Sales Expense Ad & Promotion Expense

21,500 x (.20)= 4,300 21,500 x (.10)= 2,150 6,450 21,500-6,450=15,050

PORT of entry price?

HOW WOULD YOU CALCULATEPORT of entry price?

Base Price 15,050.00 Containerization 200.00 Inland freight less handling 798.00 Forwarding and Documentation 90.00 Ocean freight 2,633.00 Commercial risk insurance 105.00 18,876.00

HOW SHOULD THEY BILL THE CLIENTLETTER OF CREDIT? TIME DRAFT?LETTER OF CREDIT? TIME DRAFT?

HOW SHOULD THEY BILL THE CLIENTLETTER OF CREDIT? TIME DRAFT?LETTER OF CREDIT? TIME DRAFT?

HOW SHOULD THEY BILL THE CLIENTLETTER OF CREDIT? TIME DRAFT?LETTER OF CREDIT? TIME DRAFT?

BECAUSE OF high percentage in defaulting on loans, the company should still insist on a letter of credit.