U 3- FINANCING FOREIGN TRADE

LÊ HỒNG LINH Tel: 0903 978 552 Email: lehonglinh.ftu@gmail.com Faculty of ESP FTU

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U 3- FINANCING FOREIGN TRADE

CASH IN ADVANCE ?

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U 3- FINANCING FOREIGN TRADE

CASH IN ADVANCE Cash in advance is a term describing

terms of purchase, when full payment for a good or service is due before the merchandise is shipped. This presents the least risk to a seller while having the most risk to the buyer.

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U 3- FINANCING FOREIGN TRADE

CASH IN ADVANCE ( CIA) Payment method in which an order is

not processed until full payment is received in advance. Also called cash with order ( CWO).

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U 3- FINANCING FOREIGN TRADE

CASH IN ADVANCE When to apply : Goods must be special Goods manufactured to buyer-only

specification.

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U 3- FINANCING FOREIGN TRADE

L/CWhen to make payment: After shipment is made Documents presented to the bank.

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U 3- FINANCING FOREIGN TRADE

Confirmed irrevocable L/C ?

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U 3- FINANCING FOREIGN TRADE

Confirmed irrevocable L/C: L/C that adds the endorsement of

a seller's bank to that of the buyer's bank. It provides the highest level of protection to the seller because not only the L/C cannot be canceled (or its terms changed) unilaterally by the buyer, but also both banks involved in the transaction guaranty its payment on its due date.

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U 3- FINANCING FOREIGN TRADE

Revocable letter of credit?

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U 3- FINANCING FOREIGN TRADE

Revocable letter of credit L/C that may be amended or canceled any

time by the buyer without the approval of the seller. Since it does not provide any protection to the seller, it is rarely used. Some banks even refuse to issue such L/Cs because of the fear of getting involved in the possible litigation between the buyer and the seller.

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U 3- FINANCING FOREIGN TRADE

Revolving letter of credit?

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U 3- FINANCING FOREIGN TRADE

Revolving letter of credit Single L/C that covers multiple-shipments

over a long period. Instead of arranging a new L/C for each separate shipment, the buyer establishes a L/C that revolves either in value or in time (an amount is available in fixed installments over a period such as week, month, or year).

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U 3- FINANCING FOREIGN TRADE

Standby letter of credit?

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U 3- FINANCING FOREIGN TRADE

Standby letter of credit Primarily a substitute for a performance

bond or payment guaranty, this L/C is used mainly in the US where banks are legally barred from issuing certain types of guaranties. It serves as a parallel (collateral) payment source in case the primary source fails to meet its obligations in part or in full.

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U 3- FINANCING FOREIGN TRADE

Transferable letter of credit ?

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U 3- FINANCING FOREIGN TRADE

Transferable letter of credit  Irrevocable L/C with two (and only two) successive

beneficiaries. In this arrangement, the first beneficiary (an intermediary or importer's foreign representative) can assign part or whole of the L/C amount to a second beneficiary (the supplier or manufacturer). To be transferable, the L/C must be so marked by the issuing bank on the instructions of the buyer or importer (the account-party). On the instructions of the first beneficiary the advising bank can transfer it to the second beneficiary but not any further.

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U 3- FINANCING FOREIGN TRADE

Red clause letter of credit 

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U 3- FINANCING FOREIGN TRADE

Red clause letter of credit  L/C that carries a provision (traditionally written or

typed in red ink) which allows a seller to draw up to a fixed sum from the advising or paying-bank, in advance of the shipment or before presenting the prescribed documents.

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Draft / Bill of exchange which is a written payment order from one party (the drawer) to another (the drawee) to pay a stated sum to a third party (the payee) either immediately (in case of a sight draft) or on or before a specified date (in case of a time draft).

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U 3- FINANCING FOREIGN TRADE

  When presented with shipping and/or title documents, it is called a documentary draft; without them, a clean draft. Also called draft bill of exchange.

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  Sight draft: Bill of exchange payable on the day it is presented to

the named entity (the drawee). Also called sight bill or sight draft. 

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U 3- FINANCING FOREIGN TRADE

  Sight draft: Bill of exchange payable on the day it is presented to

the named entity (the drawee). Also called sight bill or sight draft. 

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U 3- FINANCING FOREIGN TRADE

Open Account Most of the foreign trade is conducted on an Open Account basis - as the most simple, straightforward and flexible method available.

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U 3- FINANCING FOREIGN TRADE

Open Account Payments for open account can be made in three main ways:

  Electronic funds transfer (i.e. SWIFT/IMT)

  Bankers draft Buyer's own cheque. 

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U 3- FINANCING FOREIGN TRADE

Open Account Payments for open account can be made in three main ways:

  Electronic funds transfer (i.e. SWIFT/IMT)

  Bankers draft Buyer's own cheque. 

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U 3- FINANCING FOREIGN TRADE

THANK YOU !

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